Surface RT Flop Costs Microsoft Nearly $1 Billion

Microsoft has revealed that poor sales of its Surface RT tablet computer will cost it $900 million -- making a significant dent in the company's quarterly profits.

Earlier this week Microsoft revealed price cuts across the full range of its Surface RT devices. That's the type of Surface running Windows RT, a special, slimmed-down version of Windows 8.

Microsoft has now published its accounts for the three months ending in June and has included a $900 million writedown for Surface RT "inventory adjustments." (Source: cnet.com)

A writedown is where a company decides one of its assets -- in this case the remaining stock of Surface RT tablets that it has yet to ship to retailers -- is of less value than previously assumed.

Millions of Surface RT Tablets May Never Sell

In this case, the size of the writedown suggests Microsoft isn't simply budgeting for the fact that it will get less money than expected for some stock. Instead, it appears the company expects that at least some of the devices will never sell at all.

While Microsoft isn't revealing details, the figures suggest the company may have several million unsold Surface RT devices. In other words, the Redmond, Washington-based firm massively overestimated demand. (Source: thenewradical.com)

So, why hasn't the Surface RT done well?

There are a number of reasons: limited availability, limited opportunity for buyers to examine the device in stores, a lack of applications, and confusion over the difference between two versions of the tablet, including the Surface RT and the Surface Pro.

However, the writedown revelations suggest the problem isn't simply that the device didn't sell well, it's that Microsoft made far too many devices in the first place.

Company Profits Hit By Surface Costs

The writedown has been a major reason for Microsoft's quarterly profits being well below expectations. The company still made a very healthy $5 billion, but stock market analysts had predicted the figure would be around $6.3 billion. The shortfall even led to Microsoft's stock price dropping.

The big question now is whether Microsoft goes ahead with plans to develop new Surface RT models -- for example, by adding a faster processor or support for 4G mobile broadband.

Alternatively, it could put all its effort into the more expensive Surface Pro range and just hope to clear out the remaining Surface RT stock.