Microsoft Corp. late on Thursday said it would take whopping $900 million charge for inventory adjustments primarily related to the new Surface RT pricing the software giant announced earlier this week. By writing down nearly a billion of dollars, Microsoft essentially admits that its strategy for media tablets has failed.
“Less than a year ago, we launched Surface RT and Surface Pro, each with a unique value proposition. Surface is one part of our journey to bring innovative, compelling Windows devices to market in a modern era of computing. We analyze our progress and fine-tune our action plan as needed,” said Amy Hood, chief financial officer of Microsoft, during the latest conference call with financial analysts.
On Monday, 15th of July, Microsoft officially slashed the price of the entry-level Surface RT media tablet from $499 to $349 in a bid to make the product more competitive against massively-popular iPad slates. Since sales of Surface RT were stagnating, Microsoft had to follow the path of many other tablet makers and cut the price. A good news for the software giant is that unlike competitors it performed other actions to bolster demand for its Surface tablets.
“We reduced the price of Surface RT by $150 to $349 per device. As a result of this price change as well as inventory adjustments for related parts and accessories we recorded a $900 million charge to our income statement. While this resulted in a negative $0.07 impact on earnings, we believe this pricing adjustment will accelerate Surface RT adoption and position us better for long term success,” explained Ms. Hood.
In addition Microsoft increased retail distribution in the quarter. Surface is now available in 29 markets and 10 000 retail locations. Besides, the software company expanded the availability of Surface to its business and institutional customers.
“Through our new channel expansion program, commercial customers are able to purchase Surface devices from authorized resellers in the U.S. Over the next few months we will authorize commercial distributors and resellers in more countries,” said Ms. Hood.
Windows RT is a fully-fledged Microsoft operating system compatible with ARM-architecture application processors and incompatible with the vast majority of programs developed for Windows, something that clearly discourages anyone from using it. Given the fact that it carries Windows name, it confuses many buyers as people expect compatibility with their applications. Many PC makers, including Toshiba and Samsung, decided not to offer Windows RT-based devices early in the lifecycle of the OS so to avoid the misunderstandings. Microsoft is currently working hard to improve software support for the Windows RT platform.