If I owned Microsoft stock I would be none too pleased right now.
Microsoft was slapped with a class action suit this week by New York-based law firm Robbins Geller Rudman & Dowd LLP on behalf of those who bought Microsoft stock between April 18, 2013 and July 18, 2013. The 30-page complaint filed in the District of Massachusetts charges that Microsoft and its officers, including Steve Ballmer, Peter Klein, Frank Brod and Tami Reller, allegedly violated the U.S. Securities and Exchange filings with misleading statements about the lackluster performance of Surface RT.
Microsoft took an unexpected $900 million inventory write off for Surface RT, which only came to light in its fourth quarter earnings call held in July.
The law firm claims that Microsoft delivered misleading statements about the Surface RT and knew Surface RT was not doing well in the market. The firm said Microsoft failed to notify its shareholders that Surface RT experienced extremely poor customer demand and the inventory declined in value during Microsoft’s third fiscal quarter ending March 31, 2013.
To be fair, if you’re in the techie world and have been following Surface RT, you’d know that the product has not fared well since the beginning of this year: Microsoft’s fire sales on the excess inventory for Surface RT and even Surface Pro at its tech conferences in June, a free $100 keyboard, and recent price slashing on Surface RT all signaled bad news. . Surface RT has yet to gain any traction in the enterprise as well as consumers, and partners like Asus are officially pulling support.
For those who don’t follow Microsoft closely but own stock, the $900 million write off could have been a shocker because Microsoft missed its earnings. Upon disclosure of the news, Microsoft stock suffered a big drop, down by 11.4%, or $4.04 per share. According to the complaint, this was the biggest price drop in four years.
Questions remain as to whether Microsoft knew its Surface RT inventory plans during the previous third fiscal quarter and whether they’re accounting practice to write off the inventory was acceptable.
Indeed, the complaint states that Microsoft’s partners were already cutting prices on their own inventory to get rid of the overstock, way before Microsoft did. Even they knew the platform wasn’t as successful as expected.
Having watched the tech industry for longer than I want to say, Microsoft’s Windows RT-based tablet seems like an experiment. Remember all those Windows CE devices? (Yes, I still have a Compaq iPaq gathering dust somewhere). Microsoft is throwing spaghetti to the wall again to see what sticks.
But let’s be clear. Microsoft all along has said that what they’re doing now with their corporate restructuring, Windows 8, Office 365, Azure, and branding itself as a devices and services company is part of a long-term strategy. And that, my friends, is what we all have to remember.
Yes, Microsoft may have made a serious error with this Surface RT inventory write off and Windows RT, but they still have loads of cash to take the company forward and seek their long-term vision. This takes time. It’s not a short-term gain but a long-term outlook.
For now, maybe we’ll see more Surface RTs selling on eBay, Overstock.com or on those penny auction sites like Quibid.com.