Microsoft Surface revenue awful on paper and in the pocketbook

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Microsoft revealed Tuesday that its actual revenue for the Surface tablet for the 2013 fiscal year was $863 million, less than the $900 million charged against its profits for discounting the Surface tablet.

Technically, that means that the amount that Microsoft discounted the Surface by was more than its actual revenue for the product. The 8-K document that Microsoft filed with the SEC also reveals that Microsoft spent $898 million more in advertising for Surface and Windows 8 than it did in its previous fiscal year, when sales of the Windows division were $18.4 billion. (In 2011, Windows sales totaled $19.1 billion, when Microsoft was riding high on Windows 7.)

A writedown means that the company reports a change in the so-called "book value" of a particular piece of inventory, a tacit acknowledgement that the market value of a particular good ha decreased. One way of looking at it might be to say that a loaf of bread might be worth $5 the day it was baked, but only $3 a day later. The hope is that writing down or discounting the item in question will prompt sales, as customers perceive the item to be more in line with what they would expect to pay.

To give it an air of freshness, Microsoft cut the price of the Surface tablet by 30 percent, which apparently prompted buyers to buy up the available supply at But while the site still reports the Surface RT with 32 GB of memory as out of stock, local stores reported having them on their shelves, indicating that Walmart may not be as selling as many as first thought.

It's actually hard to say how many Surface tablets Microsoft sold, given that prices varied widely between the Surface RT and Surface Pro, both before and after the discounts. However, they certainly haven't met expectations.

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Geekwire and GigaOM, which reported the 8K disclosures on Tuesday, also noted that Windows chief Steven Sinofsky negotiated a $14 million exit package which prevents him from working at Microsoft's competitors, including Amazon, Apple, EMC, Facebook, Google, Oracle, and VMWare, until December 31, 2013.

After leaving Microsoft last October, Sinofsky now teaches at Harvard, where he's forbidden from disclosing secret information about the company. Instead, Sinofsky's blog has focused on the business processes that the company has used, including his take on Microsoft's reorganization by function, rather than by product or division. As such, he's been somewhat removed from Microsoft's day-to-day struggles, such as the Surface, which he once rode as a skateboard to demonstrate the toughness of its its VaporMg chassis. Now, after Microsoft's reorganization, the Surface is in the hands of Jule Larson-Green, the new head of the Devices and Studios Engineering Group.

Whether it's Sinofsky or Larson-Green running the show, one thing is clear: Surface may not spoil like bread or fruit, but it's apparently gone stale nevertheless.

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