Microsoft’s Surface Stomps on 4Q Earnings

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Microsoft windows Surafce RT

Last fall, Microsoft (NASDAQ:MSFT) launched an overhaul of its Windows operating system, complete with touch-screen capabilities that enabled the company to release a tablet of its own, the Surface, which was its first foray into the hardware industry. But since the beginning, the reviews of the device were not overwhelmingly positive, nor were the sales figures, and that problem was fully evident in the company’s financials. On Thursday, the software maker reported that fourth-quarter net income came in at $5 billion, or 59 cents per share, which included a charge of $900 million, or $0.07 per share, “related to Surface RT inventory adjustments.”

While the results did represent an increase of 5 percent from the year-ago quarter, the impact of the Surface write-off helped the company miss analysts expectations for earnings of 75 cents per share.

That the company’s tablets have failed to take off has only exacerbated the harm that dwindling Windows sales have had on its performance. Because its software populates the majority of the world’s personal computers, Microsoft has suffered as a result of the shift in consumer and business spending to tablets and smartphones and away from personal computers. Earlier this month, research firm Gartner reported that global PC shipments had dropped 10.9 percent in the second quarter and the industry had recorded shipment declines in the past five quarters, which is the longest slump on record.

Revenue rose 10 percent to $19.9 billion despite those difficulties, but the results did miss the $20.7 billion analysts had forecast as well.

“While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter,” said Microsoft Chief Financial Officer Amy Hood, in the company’s earnings report.

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