Surface blasts $900m hole in Microsoft empire

Microsoft’s latest 10Q filing with the SEC, has shown that the supplier took a $900m hit associated with the Surface tablet device and paid an EU fine of $733m.

When Microsoft reported its quarter results in June, it said the $900m charge “related to Surface RT inventory adjustments”.

SurfacePro4.jpg
However the annual report showed sales and marketing expenses increased $1.4bn or 10%, reflecting advertising of Windows 8 and Surface.

Cost of revenue increased $2.7bn or 16%, reflecting increased product costs associated with Surface and Windows 8 Microsoft stated.

The company’s annual report, showed Microsoft’s revenue for the year ending 30 June 2012 was $77.6bn.

Microsoft recently slashed the price of the Surface. The 32GB Surface RT has dropped from £400 to £279, while the 64GB RT’s price was also cut by 30% to £359.

Microsoft’s CEO Steve Ballmer is hoping to reinvent the company as a hardware and software firm.

The company acknowledged the risks of moving into the hardware market in its annual statement.

“Our vertically-integrated hardware products such as the Xbox 360 console, Surface, and other hardware devices we design and market are highly complex and can have defects in design, manufacture, or associated software. We could incur significant expenses, lost revenue, and reputational harm if we fail to detect or effectively address such issues through design, testing, or warranty repairs,” it said.

The company also emphasised the need to continue to build its IT infrastructure.

“Our increasing user traffic and the complexity of our products and services demand more computing power. We have spent and expect to continue to spend substantial amounts to purchase or lease datacentres and equipment and to upgrade our technology and network infrastructure to handle more traffic on our websites and in our datacentres.”

Real-world confessions from Surface RT owners: Who loves it and why

Let’s face it: The cards were stacked against the Surface tablet with Windows RT from the, well, Start.

Microsoft originally asked customers to shell out iPad-levels of cash for a brand-new user interface running on a somewhat anemic processor, then failed to convince third-party developers to launch apps for the new platform. Today, the Surface RT is arguably little more than a Web browser paired with Microsoft’s own apps.

Well, that’s the conventional wisdom, at least. But is it completely, categorically true?

“I didn’t buy the Surface because I am some crazy fanboy or too poor for an iPad. I bought it because it was the best choice for me.”
We set out to find out people who purchased the Surface tablet with Windows RT—people who loved it and people who hated it—and ask them whether their opinions of the tablet have improved or diminished over time. You can find disappointment, certainly. But others have found that the Surface RT has settled into a niche within their computing lifestyle, with certain features meshing nicely with their own needs and uses.

What we most wanted to know was this: Has the Surface lived up to its promise, and if so, why? To many we spoke to, the answer is yes—and for a variety of surprising reasons.

Most interviewees purchased the Surface RT last October, when Microsoft first launched Surface alongside Windows 8. At that time, Microsoft made the tablet the centerpiece of a “Stomp”-styled TV spot that highlighted the Surface as a sexy, aspirational piece of tech culture rather than a productivity tool. This is notable, because productivity drew many of our Surface RT–owner-interviewees to the tablet.

Take Jaime Banks, a programmer who said he bought an Apple iPad 2 when it launched—and then sold it five days after buying the 32GB version of the Surface RT. “I did this because I just believe in having the right tools,” Banks said in an email.

Surface RT in Jaime BanksJaime BanksThe Surface occupies a small niche in Jaime Banks’ computing lifestyle.
Banks said he ended up buying what was essentially a grab bag of accessories and apps for the iPad 2, and the Surface made all these purchases irrelevant. “My Surface fills the need for all of those devices,” Banks wrote. “As much as Tim Cook wants to say that [converging] a toaster and a refrigerator does not work, that is just what iPad users sometimes want... People have tried to use the iPad like a PC since it came out. I was tired of having a half solution. No matter how much I liked the iPad, it did not fill the need.”

Jeffrey Roach, an IT learning architect for a small consulting company, ditched his Samsung Series 7 notebook for the Surface RT in October. When asked why he bought the Surface, Roach provided a laundry list of apps, including Microsoft Office Home and Student RT (which Microsoft bundled with the tablet), Microsoft Outlook RT, Lync, various IM clients, and other software. Roach bought two more Surfaces as well: one for his 12-year-old son, and one for his wife, for use in her doctoral studies.

”Now I use my RT for 95 percent of my compute tasks, even more so now that Outlook 2013 [is included] in the 8.1 Upgrade,” Roach said via email.

Surface RT with Jeff RoachJeff RoachJeff Roach poses next to his Surface RT.
“Maarten,” a lawyer living in Belgium, asked that his real name not be used because he wasn’t sure if Microsoft Office Home and Student RT allowed for professional use—a testament to the productivity software’s utility. “My colleague bought the Surface Pro and it is not good for me,” he wrote in an email. “Too heavy, battery intensive. For my main purpose (use for work on the move, and often during long flights or waits in airport lounges) the RT is absolutely the best (for me). I did not suffer from confusion with the ‘full’ Windows, since I knew what RT was meant to be—and frankly, it is better than what I had expected.”

Of the many Surface RT customers we talked to, only one even mentioned gaming, and just in passing. Instead, nearly all found that the Surface RT delivers on what they bought it for: basic productivity, especially where Microsoft’s own apps suite is concerned. And they repeatedly came back to two other strengths: the hardware itself, as well as the usefulness added by Windows 8.1 and its Windows RT flavor.

The fact that users enjoyed using Microsoft Office when they bought the Surface RT for that very purpose wasn’t really surprising. But users also pointed to Microsoft’s other native apps as Surface RT selling points.

Microsoft Surface in Palo AltoMartyn WilliamsMicrosoft Office is one of the selling points of the Windows RT tablet, fans say.
“I work on Windows 8.1 RT preview, and find it is already a good improvement over the original version 8.0,” Maarten said. “The office suite completely met my expectations when working with my Type Cover keyboard. In touch mode there is still significant scope for making it more finger-friendly. Initially, I didn’t like the Mail application and was waiting for the Outlook version. In the meantime, with the improvements made to it, I have actually started to like its relative simplicity and speed.

“In touch mode, on the go, the Mail app also works very well,” Maarten added. “The input prediction is extremely intuitive and I find that I can form almost entire sentences by inputting at most the first letter of a word. As a lawyer, I am quite a power user of the mail and office apps.”

When asked about the Surface RT’s strengths, several users tied the device’s design, hardware, and apps together.

“I love it for its niche: It’s the only portable device that can run Microsoft Word for 10 hours between charges,” said Andy Rathbone, who bought a Surface RT as the foundation for his book, Surface for Dummies.

Surface RT with Andy RathboneAndy RathboneAndy Rathbone with his Surface RT.
The Surface RT uses a quad-core, 1.3GHz ARM Cortex A9 processor, and provides an estimated eight to nine hours of battery life—about double that of the Surface Pro, which uses a more powerful, power-hungry Intel Core i5 processor. Some users said that the loss of horsepower was more than compensated for by the extended battery life.

Rathbone said that he actually uses the Surface RT as a second screen—for example, loading an Excel spreadsheet via SkyDrive—while he works on a separate, traditional PC. Banks, the programmer, often explores a similar use case for his Surface RT.

“What benefits does the RT have over the Surface Pro?  Longer battery, no fan or mechanical parts, does not overheat as easily,” Banks said. “I did not need raw power home or away in my tablet. In those cases, I would use one of my many laptops or desktops that have all the power I need for development. What I needed was a device that was like the iPad, but that could be a PC.”

Finally, there’s the preview of Windows 8.1, which several users have already loaded onto their tablets. (Microsoft has said it will ship the RTM version of Windows 8.1 to OEMs by late August, meaning that general availability will be sometime after that, possibly October.) User Rob Clive said that the Windows 8.1 update really improved the Surface RT experience, and the way the soon-to-be-renamed SkyDrive cloud storage service is integrated is “fantastic.”

Jared NewmanCan you put three browser windows next to each other on an iPad? With Windows 8.1, you can. (Click to enlarge.)

A user named “Cole” posted his own impressions of the Surface RT on YouTube two days before PCWorld began soliciting customer opinions. In an email, he declined to give his name because of the company he worked for, presumably a competitor.

“I don’t understand why everyone’s calling this thing a flop,” Cole said. “Yeah, I get that if you compare it to your iPad or your Android tab, fair enough, you get more apps. But with this thing it’s more useful than all those tablets put together. I actually bought it because of the price drop, but I’m actually pleasantly surprised with it, and I just love using it every day.”

Unsurprisingly, the lack of apps topped the diverse list of complaints. While the addition of Windows 8.1 seemingly lit a fire under developers, a PCWorld analysis shows that one current Windows Store strength is games, a category that’s not important to the customers we interviewed. Meanwhile, the Windows Store still lacks several top-tier apps that are available for other platforms.

But one of the issues that Microsoft will have to address concerns basic functionality. Rathbone said that lack of driver support, along with decent apps, is a weakness. “Even the built-in Mail program doesn’t support something as basic as POP,” he added.

A user who identified himself as “gscratchWRT,” the handle he uses on Microsoft’s own forums, said that he had won the Surface RT in a contest, and had no expectations when receiving the device. He had intended to carry it as a replacement for a full-size laptop on business travel, a goal he said he has come close to. But the lack of a Cisco VPN and the inability to connect to his Windows domain held him back, he said.

Living in Europe, the lack of Spotify and Sonos music apps frustrated “Maarten,” who said he turns to his Apple iPod instead. He said he uses Bento and the Wall Streel Journal app, and enjoyed running them in full-screen mode. But the real problem for him, he said, is simply how slowly Internet Explorer runs.

Microsoft Windows StoreFor many, the Achilles heel of Windows 8/RT is the lack of apps. (Click to enlarge.)

“My main irritation is the slowness of IE for RT,” Maarten wrote. “I feel I lose a lot of time. It is always a delight to be back at Firefox with ad-block. For a device that is built for mobile access, this should not be the case. IE is the weakest link in the chain—its slowness irritates. Let Firefox make an app.”

Roach, the consultant, also said he had noticed how slow the Nvidia Tegra 3 processor ran, and would welcome an active digitizer like the one that comes with Surface Pro.

Hoang Long Tran wrote to say that he would never use a Windows RT device again.

“After using it for a few months, I was very disappointed because I found there were a lot of system errors that happened due to the updates that Microsoft provides," wrote Tran. "For example, after an update, sometimes my Surface RT couldn’t be woken up from sleeping and I [would] need to press the power button for a few seconds to restart the device. When the Touch Cover sometimes does not function, I have to remove it and attach it to the Surface again to make it function properly.”

Surface RT MaartenMaarten"Maarten" enjoys his Surface RT in his Brussels home.
Tran, obviously, is not in the market for another Surface RT. But Maarten said he would buy another, and Roach and Banks said that they already had. “One is enough,” Rathbone, the author, replied.

Most agreed that the new, 30 percent discount in pricing played a role. “Not sure, I might wait for the next generation devices,” Rob Clive said, when asked if he would buy another Surface RT. “I do believe Microsoft needs to keep the price low, as they are not, in my opinion, ready to go head to head with iPad,” he said.

The future processor of the Surface RT? Very possibly.
It’s still unknown whether Microsoft will manufacture a next-generation Surface RT, which would indirectly indicate the fate of the Windows RT operating system in general. Intel is set to release its next-generation “Bay Trail” Atom processor this fall, a chip that can run both Windows 8 and Android natively. If Microsoft did refresh its basic Surface model with Bay Trail, it wouldn't really need Windows RT. Nevertheless, it would likely sell its stock of current Surface RT tablets at a steep discount.

Generally, if a customer liked the Surface RT, he or she seemed to think that the Surface RT, and Windows RT, had a future. That’s helped quite a bit by Windows 8.1, they said.

“Yes, there is a future for RT,” Roach said. “I do believe we will see Windows Phone and RT merging into a single ARM [offering]. The hidden value you’re looking for is the fact that in roughly the same form factor of an Android or iPad, I get a fully functional tablet that also is fully compatible to use with Office. The pundits are always singling out the app situation but honestly with Office and IE I can do 100 percent of what the other two eco-systems use apps to accomplish.”

Microsoft stumbles in Q4, takes $900M Surface RT charge

Microsoft closed its fiscal year with a less-than-stellar earnings report, missing Wall Street's revenue and profit expectations and taking a gigantic charge related to its Surface RT tablet sales.

Revenue came in at US$19.9 billion for the fourth fiscal quarter ended June 30, up 10 percent compared with $18.1 billion in the same quarter last year. Analysts polled by Thomson Financial had expected, on average, revenue of $20.7 billion.

Net income was $4.97 billion, or $0.59 per share, compared with a net loss of $492 million, or a loss per share of $0.06, in 2012's fourth quarter.

The results include a charge of $900 million, or $0.07 per share, related to Surface RT "inventory adjustments," a clear sign that the much-maligned tablet has had serious problems gaining traction among consumers and has been unable to compete well against the iPad.

The results also reflect the recognition of $782 million of previously deferred revenue related to the Office Upgrade Offer.

Adjusted for the Office Upgrade Offer item, pro-forma revenue would have been $19.1 billion and earnings per share $0.52, Microsoft said in a statement Thursday. Analysts had expected earnings of $0.75 per share.

That compares unfavorably with pro-forma revenue of $18.6 billion and earnings per share of $0.73 in 2012's fourth quarter, which excluded a huge charge for goodwill impairment of $6.2 billion related to Microsoft's Online Services Division.

CFO Amy Hood said in the statement that fourth-quarter results were affected by the PC market's continuing decline, but that the company is seeing continued strong demand for its enterprise and cloud computing products.

Other products that experienced strong demand during the quarter were Office 365, Outlook.com, Skype and Xbox Live, she said.

CEO Steve Ballmer said in the statement that the company is "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."

The Microsoft Business Division, which includes Office sales, had revenue growth of 14 percent year on year, or 2 percent when adjusted for the recognition of the Office Upgrade Offer deferred revenue. Office 365, the cloud suite of Office desktop and server products, is now on a $1.5 billion annual revenue run rate, the company said.

Revenue at Server & Tools grew 9 percent, helped by strong growth of SQL Server and System Center.
Windows Division revenue grew 6 percent, but excluding the impact of the Windows Upgrade Offer revenue deferral last year, quarterly revenue actually dropped 6 percent.

Microsoft plans to ship Windows 8.1, which is intended to address a number of issues for which Windows 8 has been loudly criticized, later this year.

The Online Services Division, which includes the Bing search engine, grew its revenue 9 percent.
The Entertainment and Devices Division had an 8 percent revenue increase, helped by Xbox Live sales growth of almost 20 percent.

Last week, Ballmer unveiled a broad reorganization that he described as a "far-reaching realignment" of the company, intended to transform Microsoft and lead it to innovate faster and operate in a more cohesive manner in order to better compete against rivals that include Apple, Google, IBM, Oracle and Cisco.
Ballmer's plan is designed to shift Microsoft's focus away from providing packaged software and toward supplying devices and services for personal and work use.

The reorganization also seeks to foster a more collaborative, collegial corporate culture at Microsoft, which has been criticized for internal conflict, and to create "one Microsoft."


"This is a big undertaking. It touches nearly every piece of what we do and how we work. It changes our org structure, the way we collaborate, how we allocate resources, how we best empower our engineers and how we market," Ballmer said in a statement last week.

Why the Surface RT Failed and the iPad Did Not

 The Microsoft Surface RT, left, and the Apple iPad.

  At first glance, to most consumers, the Apple iPad and Microsoft Surface RT tablet computer look somewhat similar. They are both rectangular, have crisp screens and can boast a slick and clean design interface.

Yet on Thursday Microsoft announced that it was taking a $900 million write-down to reflect unsold inventory of the Surface RT. That’s a stark comparison to Apple’s iPad, which continues to break record sales and has sold more than 100 million devices.

So why is one still succeeding while the other has failed? I have a theory. But it begins with a story.
I often receive tech support phone calls from family members — my dad, grandfather, cousins — seeking help with a variety of computer problems. A few months ago I received such a call from my sister. She was having an issue with her iMac, and I started to walk her through a number of steps to diagnose the problem. Halfway though my narration, I asked her, “O.K., what’s the computer doing now?”

“My computer is restarting,” she said, triumphantly.
“Why, what happened?” I said, confused. “Did it crash?”
“No, I just got impatient so I unplugged it and plugged it back in.”
This is exactly one reason the Microsoft Surface RT failed to garner large sales: Impatience.

When Steve Ballmer, Microsoft’s chief executive, announced the Surface tablets last year, he stood on stage and touted a number of new and exciting features to try to separate the company’s offerings from the iPad. Among the new gizmos were additional ports, a USB drive, a microSD memory card slot, the ability to use a pen with the Surface Pro and a built-in flip-up stand. Pens sold by Microsoft also work with the Surface RT.
Just thinking about all those options is enough to make your head spin.

Today’s consumers don’t want options. They are impatient. They want to tear their new shiny gadget from the box and immediately start using it. They don’t have time to think about SD cards or USB drives or pens or flip stands.

The Surface RT didn’t allow that. Customers had to think about it.

Even the ads for the iPad and Surface RT are different. Apple simply shows the device, making the iPad the hero. Microsoft usually unveils snazzy ads that make the ads the hero, not the product.

Last year when the Surface RT was announced I wrote a post noting that one of the device’s new features did look appealing: the flap that doubled as a keyboard and might make it easier to type on a tablet. But Sarah Rotman Epps, an analyst with Forrester Research who specializes in tablets, reminded me that too many options could easily overwhelm consumers.

“Microsoft will be its own worst enemy in this market,” Ms. Rotman Epps wrote at the time. “More so than Apple or Google. Apple gets this, and limits options to connectivity, storage and black… or white.”
Maybe it’s time for Microsoft to do the same thing. It could even skip the black or white option.

Man the lifeboats! The Surface RTitanic is sinking fast

As dynamic, productive, and exciting has Microsoft has tried to make the Surface RT tablet out to be, consumers can’t shake the perception that it’s just a bland bit of overpriced plastic—all its VaporMg cladding notwithstanding—that can do little more than surf the Web.

Unfair? Maybe so. But as Wall Street digests that distasteful reality, so too should Microsoft’s marketing department. In fact, it’s eventually going to realize that as painful as the price cuts on the Surface RT have gone, they didn’t go nearly far enough.

MicrosoftAmy Hood, CFO of Microsoft.

  Microsoft reported fourth-quarter revenues Thursday that came in nearly a billion dollars less than what analysts expected, thanks to a $900 million writedown of the Surface RT tablet. Amy “Red Riding” Hood, Microsoft’s new chief financial officer, was seemingly thrown to Wall Street’s wolves, as chief executive Steve Ballmer and other chief executives were absent from the call—unlike the packed house that accompanied the “One Microsoft” reorganization. To Hood’s credit, she dodged nimbly, scattering bland crumbs of data that the analysts meekly accepted.

It shouldn’t be too hard to figure out how many Surface RT tablets the writedown represented: $900 million divided by the per-unit price cuts—equating to $150 for each version of the Surface RT—will equal the number of Surface RT tablets sitting idle on Microsoft’s shelves, said Patrick Moorhead of Moor Insights and Strategy.

The grand total? Slightly less than 6 million Surface RT tablets, according to the math.
That’s a mind-boggling number where the Surface is concerned. In May, IDC estimated that Microsoft sold 900,000 Surface tablets during the first quarter of 2013, including the Surface Pro. During the fourth quarter, IDC reported that Microsoft shipped—not sold—another 900,000 Surface RT tablets. And that’s it. That’s the sum total of what Microsoft has sold so far: probably a bit less than 1.8 million Surface tablets, in total. In other words, that’s more than a year and a half of Surface RT inventory that Microsoft has on its shelves.

Microsoft's Surface RT. Shortly before the call started, PCWorld was told that the Surface RT wasn’t dead, a position Hood backed up: “[W]e believe this pricing adjustment will accelerate Surface RT adoption and position us better for long-term success,” she told analysts.

Well, it damn well better. So far, Microsoft isn’t giving up. But if Microsoft doesn’t watch out, the Surface RT may find itself sitting next to the HP TouchPad in the dustbin of history.

And there’s the rub. In March of 2011, Hewlett-Packard revealed WebOS, an arguably elegant OS that featured a suite of basic apps, limited third-party support, and the ability to connect to the Web. Sound familiar?

Hewlett-PackardWhere the HP TouchPad went, the Surface RT could follow. After announcing a pair of phones as well as the HP TouchPad, HP abruptly discontinued the TouchPad, discounting it to $99 to rid itself of the extra inventory. And before you could say “Sharknado,” the TouchPad was the Internet’s darling, selling so quickly that HP decided to make another batch.
In general, Microsoft predicated the Surface’s value proposition on several things: the quality of its construction, including the VaporMg material and the kickstand; Microsoft’s own software and services; an apps market that would leverage the historical Windows developer base; and to a lesser extent, the novelty of a Windows tablet.

Soon after, the Surface’s advantages were methodically knocked down: the Google Nexus 7, then the Apple iPad mini, made the Surface seem large and ungainly; the novelty wore off; and, of course, customers, developers and partners turned their collective nose up at Windows RT. It didn’t help that the Surface RT competed with Microsoft’s traditional OEM partners; Samsung, Lenovo, and others refused to offer their own Windows RT products. Time has been a bit kinder to Microsoft’s Metro apps, but the delays in convincing third-party developers like Facebook to sign on have undeniably hurt Microsoft.

Right now, the average consumer most likely considers the Surface RT to be good for little more than surfing the Web and running Microsoft Office. At $349 for a 32 GB model—$150 more than the Nexus 7, which will be refreshed soon—the Surface RT just looks like a rotten deal. However, a 32 GB Surface RT is now $250 less than an iPad, a fact that Microsoft points out in its latest commercial. Will the recent price cut make up for a much weaker app environment? I'm not sure. The Windows RT brand appears heavily bruised.

Google's Nexus 7 tablet. Microsoft must demonstrate the value proposition of the Surface RT tablet, pronto. To its credit, it’s done so with its latest commercials, emphasizing Office. But even with the value that Office brings, a further price cut looks inevitable to bring it in line with competing solutions. But if it does so, it looks even weaker than before. It’s an ugly situation.

And there’s no backing down now. “Windows RT is like Intel’s Itanium processor in a way,” Moorhead said in an interview. “They have a huge commitment to it.”

Moorhead, who worked at rival AMD for most of his career, knows the analogy well: a massive, power-hungry chip for the 1 percent of the high-performance computing world, the Itanium was notoriously dubbed the “Itanic” following Intel’s grandiose pronouncements of its success and its quick trip out of sight, languishing within HP’s highest-end systems, when Intel’s own Xeon chip had largely replaced it elsewhere.

YouTube/Microsoft

  Moorhead sees Microsoft pursuing RT with the same dedication. “The future is absoutely Metro,” Moorhead said, and he’s right. Even with the changes made to Windows 8.1, the Start page isn’t going away, and the associated Metro apps aren’t either. The reality is that nobody really wants to use the Windows desktop in tablet mode—but Microsoft included the Touch Cover keyboard with it, implying that the Surface RT is just as much a PC as a tablet.

Moorhead said that he sees Metro’s problems going away in two years—a real possibility, as more users become used to the Windows 8/8.1 environment. By then, however, it might be too late for the Surface RT.
Microsoft needs to make the Surface RT attractive, fast. Otherwise, it might end up in a watery grave. Or a landfill. 

Surface RT tanks Microsoft's earnings

Microsoft fell way short of analyst estimates for its fourth fiscal quarter, with revenues nearly a billion dollars short of what analysts had expected.

The culprit? Microsoft’s Surface RT tablets. A lack of sales forced Microsoft to take a $900 million charge, in addition to a previously deferred $782 million charge related to Microsoft Office.

Sources close to Microsoft said that the charge reflects the recent pricing changes for Surface RT.

Surface RT Microsoft reported net income of $4.97 billion (59 cents) on revenue of $19.90 billion, nevertheless, which showed strong improvements from a year ago. The company reported a 10.1 percent increase in revenue from a year ago, when Microsoft reported a loss of $492 million. For the fiscal year, Microsoft reported net income of $26.86 billion on revenue of $77.85 billion.

Analysts polled by Yahoo Finance expected Microsoft to report an EPS of 75 cents per share, on revenue of $20.73 billion.

Microsoft has struggled to convince consumers to support its newly released Windows 8 operating system, but the company recently released a preview of Windows 8.1 as a “do-over” to win back customers. Win 8.1 has customer-friendly features that include the ability to boot directly to the desktop, as well as a “start button” that takes them back to a reorganized Windows Start Page.

Steve Ballmer, Microsoft’s chief executive, took a forward-looking approach Thursday, pointing to the company’s recent reorganization as a recipe for success.

“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 in a statement. “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.”

Steve Ballmer

In a study conducted by online advertising network Chitika, the share of North American web traffic from Windows 8 operating systems has grown to 4.8 percent, the company said Wednesday.

"Windows’ hold on the continental desktop OS marketplace remains as strong as ever,” Chitika said in a statement. “While this is certainly good news for Microsoft, it is tempered by the continued growth of mobile web browsing, where the company is not as strong, along with the more gradual slope of Windows 8 growth rate within North America."

"However, Microsoft’s decision to make some changes to the recent Windows 8.1 update may spur more users to adopt the new OS, as the company has attempted to address some of the user concerns surrounding the initial version of the software.”

Microsoft’s Windows Division revenue grew 6 percent for the fourth quarter and 5 percent for the full year. Excluding the $540 million impact of its Windows Upgrade Offer revenue deferral, however, the Windows Division revenue would have decreased 6 percent for the fourth quarter and 1 percent for the full year.
Microsoft was also affected by the continued slide in the PC market, which has seen consumer buy tablets and phones rather than PCs. Amy Hood, Microsoft’s chief financial officer, said that Microsoft is instead investing in cloud services.

“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. We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE,” Hood said. “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 traditional pillars of strength continued to buoy the company.

Microsoft’s Business Division reported the highest profits and revenue, at $4.87 billion ($4.1 billion a year ago) and $7.2 billion respectively ($6.3 billion a year ago).Server and Tools reported $2.3 billion in profits (versus $2.04 billion a year ago) on $5.5 billion in revenue ($5.1 billion a year ago).Microsoft’s Entertainment and Devices Division also saw its losses shrink from $252 million to $110 million, as revenues grew from $1.78 billion to $1.92 billion.Microsoft’s online business continued its money-losing ways, with a loss of $372 million on increased revenue of $804 million.Bing organic U.S. search market share was 17.9 percent for the month of June 2013, up 230 basis points from the prior year period, Microsoft said.

  “We continue to see strong demand for our enterprise products and services, with more and more customers making long-term commitments to the Microsoft platform,” said Kevin Turner, chief operating officer at Microsoft, in a statement. “The growing adoption of our cloud services, including Office 365, Windows Azure and Dynamics CRM, continues to demonstrate our leadership position in the cloud.”
Microsoft did not release a revenue outlook. 

Surface RT can help small businesses reduce IT costs

Microsoft caved to market pressure and sagging demand this week by slashing the price of the Surface RT tablet by 30 percent. The Surface RT is better-equipped for business than rival tablets, and at $350 ( $470 once you add a Touch or Type keyboard cover, which it requires to be truly functional) it straddles the line between tablet and PC, and could help business customers rein in IT costs.
The Surface RT isn’t for everyone. It can’t run traditional Windows software, so businesses or users that depend on specific applications or custom software can’t just toss out their PC and use a Surface RT. For a variety of use cases, however, a device with email, Web access, and Microsoft Office is sufficient.

The Surface RT can replace a Windows PC for many users. The Surface RT includes Word, Excel, PowerPoint, and OneNote. With Windows 8.1, the Surface RT also gets Outlook, and Microsoft just updated the OneNote MX app to allow it to connect to Office 365 accounts. Microsoft has also made many of its tools available across iOS and Android, but the integration of the Surface RT with Microsoft software and services sets it apart from other mobile devices as a business tool.
It's true a business can supply users with standard Windows laptops—with the full Windows operating system, more internal storage, a real keyboard, and possibly a DVD or Blu-Ray drive—for roughly the same money. But when it comes to weight and battery life, no $500 laptop can come close to what the Surface RT has to offer.
Many businesses are purchasing tablets for users to use in addition to their standard desktop or laptop PC. In that case, you have to consider the cost of both the PC and the tablet. A Surface RT, on the other hand, can conceivably function as both and allow the business to cut IT costs while giving employees greater flexibility and mobility at the same time.
Let’s face it, small and medium businesses need professional-grade networks and PCs, but most don’t have dedicated data centers and many don’t even have full-time IT staff. They rely on simple, cost-effective technology. The Surface RT can augment a Windows PC better than other tablets thanks to Windows 8 and the tight integration with Microsoft software and services, and—for the right users—the Surface RT can be a primary device that fills the role of both PC and tablet in one. 

Microsoft slashes the price of its Surface tablet

Microsoft has cut the price of its flagship Surface tablet. The 32GB Surface RT has dropped from £400 to £279, while the 64GB RT’s price was also cut by 30% to £359.
But the Microsoft’s Surface Pro has not seen any changes to its price. The full Windows 8 tablet starting price remains at £719 for 64GB.

The devices were launched at the end of last year to challenge Apple and Android tablets, which dominated the market.
Tablet shipments have grown 142% year-on-year in the first quarter of 2013. According to IDC, 49.2 million tablets were shipped in Q1 and 900,000 of those units were Surface RT and Surface Pro devices.
The change in pricing comes days after CEO Steve Ballmer announced plans to reinvent Microsoft with a big push to develop hardware.
Expanding beyond the Xbox and the Surface tablet, Ballmer plans to grow consumer hardware and enterprise services. “We will design, create and deliver, through us and through third parties, a complete family of Windows-powered devices,” he said.

Part of this push with devices in the consumer sector will also occur in the enterprise market.

Microsoft drops Surface RT price by as much as 30%

Microsoft slashed prices on its Surface RT tablets by as much as 30 percent, with the entry-level 32GB model selling for $349 starting July 14.

The 64GB Surface RT was also discounted by $150, and now sells for $449, or 25 percent off its former price.

When Microsoft launched the tablet, it sold the 32GB device for $499 and the 64GB configuration for $599.

Microsoft started selling the Surface RT at the lower prices July 14, as did some of its U.S. retail partners, including Best Buy and Staples. On its website, Staples noted that the discounted prices are valid until July 20, and only while supplies last.

Microsoft's website, however, listed no caveats, hinting that the lower prices might be permanent or at least will be honored for longer than one week.

The prices are another attempt by Microsoft to clear its existing inventory in preparation for a second-generation line of Windows RT devices. Previously, Microsoft had launched multiple deals to rid itself of the poor-selling tablet, most recently in June when it slashed prices by 60% in a bid to get universities and K-12 schools to buy the device.

Earlier, it kicked off a buy-a-Surface-RT-get-a-free-cover deal that ran until June 30. And at several conferences, including June's TechEd North America and this month's Microsoft Partner Conference, the company sold attendees a 64GB Surface RT for $100, 83 percent off list price.

The sale prices are nearly at Microsoft's cost, which according to estimates of the tablet's component prices, runs the company at least $284 for the 32GB Surface RT.

Microsoft has not abandoned Windows RT, the pared-down operating system that powers the Surface RT, but virtually every third-party OEM has either pointedly ignored the OS or publicly announced that they would not support it with devices of their own. Instead, the OEMs have flocked to Windows 8 Pro, even though some analysts question the value of touch devices on a platform whose biggest selling point is legacy software that doesn't support touch.

It was the lack of OEM support that made it possible for Microsoft to drop the price of the Surface RT so dramatically. Microsoft essentially had promised hardware partners that it would not undercut their pricing—unlike Microsoft, the third-party OEMs must pay for the Windows RT license—but with no competition, and thus no OEMs to antagonize, Microsoft was able to push the Surface RT into the bargain basement.

Long-time supporters of Microsoft have turned their back on Surface RT, even at the heavily-discounted price. Today, blogger Paul Thurrott, generally bullish on Microsoft, excoriated the tablet, calling it a "piece of junk" that is "simply too underpowered to provide a satisfactory experience."

Microsoft has made no noise about when, or truth be told, even if, it will debut new Surface RT devices. But it seems clear, after last week's corporate reorganization and its emphasis on a "complete spectrum" of devices—a "family of devices," as CEO Steve Ballmer put it—that the company must at some point unveil new tablets, if only to put its money where Ballmer's mouth is.

Analysts and pundits alike have held up the newest processors from Intel and ARM licensees such as Nvidia as Microsoft's best hope for gaining more ground in tablets. Those processors, battery misers and more powerful, respectively, are expected to appear in new devices this fall—in time for the holiday selling season but likely not for the almost-as-important back-to-school sales, into which Best Buy lumped the discounted Surface RT.

Microsoft has not revealed sales figures for the Surface line—which also includes the Surface Pro, powered by Windows 8 Pro—but estimates by research firms like IDC have been lackluster.

The discounted Surface RT can be purchased at Microsoft's retail and online stores, as well as retailers like Best Buy and Staples.

Staples preps Surface RT sale, as rumors of wider price slash surface

Anyone looking to snag a Windows RT tablet should hold off until Sunday, when at least one retailer will be lopping $150 off the base price of Microsoft’s Surface RT. Staples will be selling the 32GB Surface RT for $350 starting Sunday, July 14 until Saturday, July 20, as part of the retailer’s weekly promotional sales. But whether the Surface RT’s cheaper pricing is part of a larger, more permanent price cut or just a temporary drop for one model appears to be up for debate.

The Staples price drop appears to confirm an earlier report by The Verge which said Microsoft plans to cut the prices for the 32GB and 64GB Surface RT. Except it doesn’t, really.

Based on The Verge report, you will reportedly be able to pick-up the 32GB Surface RT for $350 or $450 for the 64GB model. If you want a Touch Cover accessory to go with either slate, add another $100 as you do now. But the Staples weekly ad makes no mention of a price cut for the 64GB model, even though the retailer sells that version of the Microsoft slate.

When approached by PCWorld, Microsoft said it doesn’t comment on rumors or speculation.

Wait until Sunday.
A price cut for the aging version of the Surface RT certainly wouldn’t be a surprise.

If, as Microsoft claims, the Surface RT is truly a PC then a drop in price is long overdue. The company’s RT slate first appeared in October at the same $500 price you can buy it for right now. Nine months without a price cut is an eternity for a Windows PC, where slashed costs typically come mere months after a product launches.

There are also expectations that new Surface models are on their way including rumors of 7- and 9-inch models. A next-generation Surface RT is also expected to come packed with Qualcomm’s new Snapdragon 800 chip, a veritable speed demon in the world of ARM-based chips.

From Staples' website.
So a long term price drop to move inventory would certainly make sense, especially with reports about Surface RT sales being so dismal. In May, market research firm IDC said just 200,000 Windows RT tablets shipped worldwidebetween January and March—a figure that includes Surface RT sales. (IDC and PCWorld are both owned by International Data Group.)

Then again, the Staples price cut looks like just another temporary sale in a long line of recent Surface deals. In late May, attendees of Microsoft’s TechEd conference were able to pick up a 64GB Surface RT for just $100 . Around the same time, Microsoft offered the rest of the world a free Touch or Type Cover with the purchase of a Surface RT tablet. In mid-June, Microsoft said it would offer its RT slate for just $200 for a limited time to universities and K-12 schools.

So many fire sales in such a short time span do make you think a new model is barreling down the pipeline, though.

We’ll keep our eye out for more Surface RT deals from other retailers in the coming days. In the meantime, however, the only confirmed price cut we’ve seen is the Staples deal on a 32GB Surface RT for $350.