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Microsoft takes US$900m Surface hit

22 Jul 2013

Microsoft's gamble on Surface RT appears to have flopped, with the software giant taking a huge $900m hit on the devices.

Despite posting revenues of US$19.90bn during the fourth quarter, the company's earnings and sales missed expectations by a relatively wide margin, with the write down of Surface RT "inventory adjustments" denting profits.

After recently lowering the cost of all its Surface RT devices, the company has suffered as a result of the ever-emerging Post-PC era, with new CFO Amy Hood attempting to put a brave face on the results.

"In many ways it reflects the trends," she said.

Claiming "we now we have to do better," Hood challenged Microsoft to "evolve beyond the PC and into the "modern era of computing."

Following CEO Steve Ballmer's new 'One Microsoft' philosophy, Hood insisted the poor showing in the PC division was the only blip, citing success in other areas such as enterprise and cloud offerings.

“While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter," she said.

"We also saw increasing consumer demand for services like Office 365,, Skype, and Xbox LIVE.

"While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

Microsoft's new business plan focuses on innovating with "greater speed, efficiency and capability" according to Ballmer's rally cary last week, with the charismatic CEO once again looking on the bright side.

“We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs,” Ballmer said.

“Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most.”

Microsoft has reduced prices on its Surface RT tablets by as much as 30%, in a bid to boost poor sales and shift existing stock last week.

The software company’s entry-level 32GB model has been reduced from US$499 to $349, while the 64GB model is now selling at $499, at a $150 reduction (25%).

Microsoft, which confirmed news that the Surface Pro will be made available in New Zealand, sold around 1.5 Surface devices by March this year, with over a million of the Surface RT version.

And in the wake of the major reorganisation by Microsoft and now poor financials, Techday's David Williams asks is this the desperate moves of a man trying to save his own skin?

What do you think of Microsoft's Q4 results? Should Ballmer be worried? Tell us your thoughts below