Microsoft swallows bitter tablet as share price dives

Microsoft’s share price fell 11% since announcing a massive $US 900 million write-down, with some analysts estimating the tech giant could be sitting on a stockpile of up to six million unsold Surface tablets.

As SmartCompany reported last week, the company announced a $US900 million charge relating to unsold inventory of the consumer version of its Surface tablet, which uses an ARM processor rather than an x86-processor from Intel and runs a special version of its operating system, known as Windows RT.

The inventory write-down comes less than a week after Microsoft announced a large price cut of $US150 for the struggling product line.

The Surface managed to sell just 900,000 during each of its first two quarters on the market, representing less than 1.8% of the market.

In contrast, as SmartCompany reported in October last year, Microsoft is believed to have ordered production runs of between three and five million units per quarter, similar in volume to the Google Nexus 7 tablet and the Amazon Kindle Fire.

The news has prompted a number of leading analysts, including David Gilbert and Alex Wilhelm, to estimate the tech giant might be sitting on an unsold inventory of around six million units (the $US900 million write-down believed to consist of around six million units at $US150 each).

The poor Microsoft Surface sales figures come on top of a 13.9% year-on-year drop in PC sales during the first quarter, followed by a 10.9% drop during the second quarter.

Making matters worse, key Windows Phone 8 partner Nokia reported a 27% year-on-year drop in smartphone sales during the second quarter, along with a loss of €115 million ($190 million).

“The recent reorganisation does not fix the tablet or smartphone problem,” Nomura analyst Rick Sherlund says.

“The devices opportunity just received a $900 million hardware write-off for Surface RT and investors may not even like the idea of wading deeper into this territory.”

Following the news, according to Reuters, on Friday investors wiped 11% or about $US34 billion off Microsoft’s share price – the largest single day percentage fall since 2009.

“This (the results) was much more disruptive than investors have expected, with Microsoft missing its guidance in every division and guiding lower. Everything an activist investor could ask for,” Sherlund says.