Microsoft: "We know we have to do better"

New CFO Amy Hood humble in the face of $900 million Surface RT write-down

Microsoft took a $900 million write-down on its fourth-quarter financial results due to unsold Surface RT tablets. The message from the company's executives was clear: "We have to do better."

The price of the Surface RT was slashed at the start of this week: by $150 in North America, and by 120 in the U.K.. In a call with investors following the publication of Microsoft's financial results, newly installed CFO Amy Hood claimed that the price-cut would "accelerate adoption" of the device, even as it pummelled the company's bottom-line.

"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," Hood said.

Microsoft certainly isn't abandoning Surface: in the last quarter it significantly increased its retail presence, with more than 10,000 outlets now stocking the Surface range. More importantly, the company's executives repeatedly referred to the declining market for PCs, with tablets and smartphones the obvious destination for its core Windows business.

And that Windows business is beginning to struggle. While still a big earner for the company, the division's revenue declined by 5 per cent in the quarter, which, coupled with the impact of the Surface RT's poor performance, elicited some humbling statements from Hood.

"This quarter our Windows business declined as the device market continued to evolve beyond the traditional PC," she said. "We are working to transition the business into this modern era of computing taking advantage of the new scenarios enabled by Windows 8. As we said before, given the complexity of the ecosystem this journey will take but we continue to make incremental progress.

"We are working hard with our partners to gain share in the evolving and growing device markets. I want to be very clear, we know we have to do better and that's one reason we made a strategic and organizational changes we made last week. With over 1.5 billion Windows users around the world, a transition of this magnitude takes time. We are confident we are moving in the right direction."

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Latest comments (10)

Adam Campbell Game Production Manager, Azoomee4 years ago
A.few small steps make all the difference...

I was disappointed by the approach with Surface, including release tactics, price, the heavily sandboxed approach of Windows 8 RT and lack of a smaller model (where the market is clearly heading).

The product has its strengths, but it neither carried the value nor the flexibility to usurp iPad or Google Nexus as dominant tablet platforms. Hopefully a new line up for the final quarter of 2012 will at least address several basic complaints.
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Paul Shirley Programmers 4 years ago
Can't see how spreading the same failed design decisions that make Win8 on tablets a flop more evenly round the entire product range can do anything but spread the FAIL. Yet that's exactly the plan, make the entire product range even more homogeneous, whatever compromises that requires. Unfortunately it's the users being expected to accept compromise.

Seems rather a lot of them have chosen the compromise of not using Microsoft devices. Perhaps MS should concentrate more on making the best device for each niche and less on forcing uniformity on unsuitable devices.
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Adam Campbell Game Production Manager, Azoomee4 years ago
there is simply no market for 2 closed operating systems, neither in desktop space nor in Tablet/Phone space.
I disagree.

Windows Phone is already the 3rd ecosystem, sure, far behind in sales compared to iOS but has outpaced blackberry and is currently the fastest growing mobile OS.

I have a Windows Phone and made a choice based on its unique interface, speed and features, compared to the options. Others may choose iOS, others Android (which I have in Tablet form mind you). Leaving the market 'to be' isn't really a good option, whether for the sake of competition or the sake of customer choice.

With so many mobile units and mobile customers, there's space, and whether those options are adopted or not is down to us in the long term.

Edited 1 times. Last edit by Adam Campbell on 19th July 2013 2:59pm

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Show all comments (10)
Thomas Dolby Project Manager / Lead Programmer, Ai Solve4 years ago
When the 'One Vision' approach was first being put into action, I was actually getting quite excited about the idea of one great ecosystem accessible through many different forms, but the more they plough forward with it, the more flawed it becomes. They're not being nearly as pragmatic as they should be when it comes to tackling a platform, and it's showing a real disregard for the reasons and purposes the platform was successful for in the first place. No-one seems to have considered the jack-of-all-trades, master of none analogy very seriously, and yet they still go in with a premium price point for all of their devices.
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Renaud Charpentier Game Director, The Creative Assembly4 years ago
The Surface RT with that specific OS, incompatible with the proper Win8 was a big mistake. When they will come back with Win8.1 tablets, cheaper and capable of being used as PC laptop replacement, they will find a much wider audience.A "Tablet" with the Steam library... take my money...
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Richard Gardner Artist, Crytek4 years ago
The Surface Pro is an amazing device, I have owned one since the UK launch and really enjoy it and the compatibility options. I can't say the same for the RT.

I really think Microsoft are onto something if they continue to push what works on the Pro. I anticipate Microsoft to push the Surface 2 as a portable 360, with rumors already floating around of them pushing it more as a gaming device or even a new range altogether.

Even on the first generation Surface Pro you can expect to run existing games at around 5-7FPS less than on a 360/PS3. Its pretty dam close to the plateau it needs to achieve.
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Gareth Donaghey Customer Support Agent, Blizzard Entertainment4 years ago
Edge magazine put it best in its recent edition: ".... they designed an OS for touch screens for a world without touch screens"
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Richard Gardner Artist, Crytek4 years ago
Oh for sure, I didn't mean to suggest it was going to happen over night or even a specific product targeted as 'portable 360' I imagine it will simply be an ultra-book/tablet that has enough power to play Gen3 games which sort of already exists. Just not as compact as a tablet. The newest generation of Intel processors should just about be able to run console games on the integrated graphics.

I would anticipate Microsoft to branch out the Surface brand and range of devices, fine tune what worked and didn't work with the RT and Pro and lay a better foundation with the Surface 2. The rumor currently is they are dropping the screen size to 9 inches and aiming for devices to target casual, professional and gamers. We will have to see how they turn out towards the end of this year.
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Andrew Goodchild Studying development, Train2Game4 years ago
Prior to the price announcements, there were rumours that the RT may have been priced competitively with the Kindle fire and Nexus tablet. People were cautiously excited by it.
I was then talking to a Microsoft "Evangilist", and was grilling him on price. At first he said it would be cheap, then let slip the 400 ballpark figure. I was a bit confused that he thought iPad pricing was cheap. They needed to go toe to toe with the Nexus, whether that meant a smaller screen version or not.
The problem with the new pricing now is it sends a signal of a product reduced in price because it is floundering, whereas selling it at that price at launch would have seemed a bold statement of intent.
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Aleksi Ranta Category Management Project Manager 4 years ago
The first stumbling block for the surface was and still is, Microsofts very slow broadening of the reseller base.
The limited online and brick&mortar availability at launch did not make any commercial sense:
- Wasnt available globally (atleast in the main markets)
- Wasnt even available in the US on very large scale (Only through MS own stores at launch if my memory serves me correctly)
- Right at time of writing, for example only available in Finland through a few select stores.

by having a had a more solid launch strategy and getting the product in front of the masses faster would have made a hell of a difference, at least in the first few weeks and months after launch. With products like these you are all in or not in at all.

Oh well, impressive first showing of the surface and a poor launch. Hope the poor first showing of the Xbox One translates to impressive sales

Ill end with this before i get my coat: Microsoft please stop being so "American" and start being more global.
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