Surface Flop: Microsoft's $900M Charge On Its Struggling Tablet

Microsoft missed earnings expectations today in its fourth quarter, coming in light on revenue and earnings per share. Wall Street had expected $20.7 billion of revenue for the quarter; Microsoft posted just $19.9 billion, and its share price immediately slipped roughly 4% in after-hours trading.

One of its biggest stumbles comes due to the Surface RT, Microsoft's Windows-based tablet that was designed to compete with Apple's iPad and Google's Android-based devices. While much ballyhooed by Microsoft, the Surface RT received tepid reviews at best, and struggled to find its place in the market, due to sluggish performance and a weak app store. Today, Microsoft revealed the costs of the investment, taking a $900 million charge, worth $0.07 per share, "related to Surface RT inventory adjustments."

That's quite the hit for Microsoft's new flagship product—and quite the referendum on its bet on hardware. It likely explains the big $150 price cut Microsoft is offering on the Surface RT, which only served to highlight the device's struggles to find demand in the marketplace. In addition to missing expectations and taking the large writedown on the Surface RT, Microsoft also saw its sales and marketing expenses increase by $344 million, "reflecting advertising costs associated with Windows 8 and Surface," without much to show for it.

It's further bad news for a company already struggling to reinvent itself in a world increasingly dominated by Google and Apple. And while Microsoft's tablet strategy is not resonating as much as the company had hoped, there's only bad news in the PC market, with shipments declining around 11% last quarter, according to IDC.

As Microsoft said in its report, "The consumer PC market remains challenged." And not even the Surface RT seems to be able to offer the company hope.

[Images courtesy of Microsoft]

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