Microsoft wrote off more cash than it made on Surface tablets

Right side view of the Microsoft Surface Pro on a desk

Tweet
Facebook
Google plus
Send to

UPSTART TABLET MAKER Microsoft has reported that it generated just $853m in Surface RT and Surface Pro sales during its 2013 fiscal year, even after it spent hundreds of millions trying to push the devices.

Microsoft's decision to design and market its own brand of tablets was a high risk strategy that inevitably alienated its relationships with OEMs. Judging by the firm's US Securities and Exchange Commission (SEC) 10-K filing, the gamble didn't pay off, with Microsoft revealing that its two Surface tablets brought in only $853m during the firm's fiscal year 2013, which in Microsoft's world is nothing short of a disaster.

When Microsoft announced its quarterly results earlier this month, CEO Steve Ballmer said the company would write off $900m on its Surface tablets, confirming that Microsoft's tablets were not selling. With the firm's SEC 10-K filing, how poorly the Surface tablets fared comes into focus.

When Microsoft pushed the Surface RT to consumers it was unlikely that the firm thought it would be able to overturn Apple's dominance in the tablet market. However it must have expected that business users would buy the larger Surface Pro that runs Windows 8. While Microsoft didn't give a breakdown of the $853m between the two devices, given the higher price of the Surface Pro, it would be a fair assumption that the Windows 8 tablet generated more money for the firm, though more of a small amount.

The problem for Microsoft is that while $853m in sales might not be bad for a couple of tablets, both of which can hardly be described as "best of breed", the firm spent hundreds of millions marketing the devices. Microsoft didn't say how much it spent on marketing but did report, "Sales and marketing expenses increased $1.0 billion or 34 percent, reflecting an $898 million increase in advertising costs associated primarily with Windows 8 and Surface."

Between Microsoft's $900m writedown, disappointing sales, increased marketing costs and annoying loyal OEMs, it seems that Microsoft's foray into the tablet market is sinking faster than the price of Surface RT tablets. µ