Microsoft misses estimates and writes down $900M on Surface RT

Microsoft (s msft) took a big $900 million write down — 7 cents a share — because it apparently didn’t think it could sell Surface RT devices for $499 each, the company said Thursday in the earnings release for the fourth quarter of its 2013 fiscal year.
The company did $19.9 billion in revenue, up 10 percent year over year but coming in 4 percent below analysts’ expectations.
Net income was $4.97 billion and 59 cents in earnings per share, below the 75 cents per share estimation from analysts.
My colleague Kevin C. Tofel reported earlier this month that the price of the Surface RT laptop-tablet hybrid would be falling to $349, and that sales of the devices have been slow. Kevin has more today on the problems with Surface RT.
“We believe this pricing adjustment will accelerate Surface RT adoption and position us better for long-term success,” Amy Hood, Microsoft’s chief financial officer, told analysts during the Thursday investor call.
More generally, the PC market hit Microsoft hard in the quarter, Hood pointed out in the release. That echoes Intel’s (s intc) results from Wednesday. Still, each of the six categories Microsoft breaks out reported revenue growth year over year.
The biggest growth came from the Microsoft Business Division, which includes Office 365. Exchange, Lync and SharePoint all grew in the double digits.
The Server & Tools division got a 9 percent boost in the quarter. SQL Server and System Center came in with double-digit growth.
As for Windows Azure, the Infrastructure as a Service (IaaS) that Microsoft released to all customers this quarter, references are scant in the release. And that’s despite the fact that Microsoft has poured lots of money into it.
Microsoft executives have been hyping how many servers it has and how much money Azure pulls in. The company could be experiencing delusions of grandeur, imagining that one day it will surpass Amazon Web Services (s amzn) and lead the public-cloud pack. At the moment, it’s just not the gorilla Amazon is.
But as companies give Azure a spin, Microsoft wants to be ready to support them all. “We continue expansion of our data center footprint, which enables us to deliver high-value services and experiences globally,” Hood said.
When accounting for $540 million in previously deferred revenue associated with the Windows Upgrade Offer, the Windows Division was down 6 percent year to year in the quarter. That unit includes Windows operating systems and Microsoft PC gear.
Hood said in the current quarter — the first in the company’s 2014 fiscal year — the sluggishness in the x86 PC market should continue, and that would result in more revenue declines in the Windows Division. At least the company has the cloud to be hopeful about.
Even after the earnings call, it remains unclear how the grand reorganization CEO Steve Ballmer announced earlier this month will affect the company’s future earnings releases. The company will divulge information on what changes will be made, if any, to the way it reports financial results, at an analyst event later this year.
After the call, Microsoft stock was down more than 6 percent from its closing price of $35.44 in after-hours trading.
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This story was updated continuously on Thursday.