Surface RT is worse than we thought: Why Microsoft took a $900M inventory hit

I suggested in January that there would be little demand for Surface RT when comparably priced Windows 8 tablets were available. Now there are 900 million reasons to back up that suggestion: In its quarterly earnings report on Thursday, Microsoft included nearly a billion dollar inventory adjustment to its financials due to Surface RT:

“These financial results include a $900 million charge, or a $0.07 per share impact, related to Surface RT inventory adjustments.”

That financial footnote may explain why Microsoft reduced the price of Surface RT devices by $150 recently, dropping the $499 base model down to $349 for the hybrid tablet computer. Even so, an informal poll of our own readers suggests that even at this price, Surface RT isn’t desirable: Of the 298 votes, 63.8 percent of respondents said they still aren’t interested.
Windows 8 Start ScreenIt sounds like Microsoft now has a glut of Surface RT devices in warehouses or in the retail pipeline that simply aren’t selling, even at the reduced price, or it figures it won’t sell most of them.
There’s a very small glimmer of hope though, based on a IHS teardown of the Surface RT product last November. The bill of manufacturing and the cost to build Surface RT with keyboard cover was estimated at $284. It could have even become cheaper to make over time. That means Microsoft may have more room to move on price cuts and consumers could snag a Surface RT at $299 with Microsoft still eking out a small profit.
For many however, even at that price Surface doesn’t become attractive. It does include Microsoft Office software on the desktop but there are still some key apps missing in the new Metro-style interface. And it doesn’t run any old Windows applications, so it’s an all new app ecosystem starting from scratch.
At this point, Surface RT is looking more like the HP(s hpq) TouchPad 2.0: A great product on paper but too many gaps in the implementation.