Tuesday's report added new dimension to the scope of Microsoft's problem. The company evidently took in only $853 million in Surface-related revenue in all of its fiscal 2013, which started in July 2012. That's almost $50 million less than the $900 million write-down Microsoft recently took to accommodate a $150 Surface RT price reduction.
What's more, Microsoft increased its marketing budget by almost $1 billion during the reported period, mostly to advertise Windows 8 and the Surface products. Because Windows 8 and the Surface RT didn't hit the market until late October, Microsoft's tablet revenue represents only two-thirds of the fiscal year, which means that in only 8 months, the company spent a gargantuan amount of money attempting -- and failing -- to attract consumers.
To be fair, there are only a few tech companies that can casually absorb billion-dollar losses, and Microsoft is one of them. Still, the situation is bleak for several reasons.
The $853 million in revenue includes both the Surface Pro and the Surface RT. In May, IDC estimated that Microsoft sold about 900,000 combined Surface units in the first three months of the year. This is a relatively paltry sum (IDC estimated that Apple sold 19 million iPads over the same period), but some had speculated that the Surface Pro, which arrived months after the RT model and was initially subject to stock shortages, was selling better than its sibling. Microsoft's disclosure suggests that both tablets have struggled, however.
With the PC market in disarray and Windows 8 still struggling, Microsoft's Surface woes are only one facet of the company's larger challenges. The company hopes to improve sales of both PCs and tablets with Windows 8.1, however, and Ballmer confirmed in July that new Surface models are in development. The OS update should help Windows 8 overall -- but the question still remains: How is Microsoft going to reverse the Surface's dreadful performance?
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