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Surface blasts $900m hole in Microsoft empire

Cliff Saran

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”. 

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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.”


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