Did Walmart just sell out of Microsoft Surface RTs?

A couple of weeks after Microsoft's $900 million Surface RT write-down, Surface RTs seem to be selling -- at least at Walmart.
Written by Mary Jo Foley, Senior Contributing Editor

Don't look now, but Walmart may have just sold out temporarily of Microsoft's recently discounted Surface RT devices.


Yes, those same Surface RTs that Microsoft repriced and are now $350 (plus $100-plus for a keyboard/cover). The Surface RTs that were responsible for Microsoft's $900 million write-down which it took in Q4 FY 2013.

Robert McLaws, Chief Technology of AdvancedREI, tweeted me about what looks to be an "out of stock" situation for 32 GB and 64 GB Surface RTs purchased from Walmart online. Some U.S. stores are still showing availability in-store, however, of one or both Surface RT models.

On its Web site, Walmart is advising customers that they may not have their Surface RT orders filled in stores for another week or so.

Does Walmart's Surface RT stock status prove $350 was the magic price point at which Microsoft initially should have used as its Surface RT entry point a year ago in October, instead of going with $500? Maybe...

It also could be the case that after Microsoft's various Surface discounts -- at its own and others' recent shows and conferences -- more people have had a chance to kick the tires of Surface RT devices. Microsoft officials now believe that Surfaces aren't products that users will shell out to buy online without having at least some, quality hands-on time with them

Surface RT: It's about both demand and supply

The bigger and still unanswered questions are how many Surface RT devices Microsoft made and how many it has sold to date. In an internal town hall meeting at Microsoft last week, Microsoft CEO Steve Ballmer admitted to employees that Microsoft made too many Surfaces. (Duh.) But no Softie has said publicly how many Surface RTs were too many -- or how and why Microsoft over-ordered.

Simply taking the two known numbers -- the total write-down and the discount on each Surface RT -- to calculate the number of Surface RTs manufactured is overly simplistic, said Directions on Microsoft analyst Michael Cherry.

The $900 million write-down also included parts and accessories, Cherry noted. And many forget that Apple is the master of tying up critical elements of components the company needs in order to build an adequate supply of consumer electronics.

"When Microsoft decided to step into the world of building tablets I wondered how this differed from what they already built (mice, keyboards, and Xboxes)," said Cherry. "I assumed that a lot of money went into: a) buying parts; b) buying time in a plant; and c) building sub-components such as milling the metal chassis that they were going on about so much."

Because Microsoft was intent on keeping its Surface RT plans secret, Cherry said he assumed a lot of the company's component/part purchasing was done at the last minute, and therefore, "had to cost a lot." In some cases, Surface parts might have been shipped by air rather than container ship, for example, in order to meet last-minute deadlines.

"They also likely had to pay a lot to hold capacity open in case it really took off, which now, there may not be a need for," Cherry added.

We also know that Microsoft is working on what officials called at the company's Worldwide Partner Conference "updates" to the Surface RT and the Surface Pro -- both of which are due to launch some time during Microsoft's fiscal 2014 (which runs from July 1, 2013 to June 30, 2014). Microsoft Chief Operating Officer Kevin Turner publicly stated these dates and the existence of these updates during his keynote remarks in Houston.

If Microsoft is planning to use any of the same components and parts in its second-generation Surface RT and Surface Pro devices as it does in its generation one models, the $900 million write-down also may include depreciation on those parts.

Once Microsoft goes public with specifics about the next Surface RT and Surface Pro devices, further/new discounts on the current models also will be likely. I'd think Microsoft officials would have figured any future discounts into this $900 million figure, rather than have to do another write-down during a future quarter.

Microsoft officials aren't saying anything more about Surface RT's past or futures. They are insisting that positioning the Surface RT more clearly as an iPad competitor, but one that's more focused as a productivity tablet, will help it gain market momentum.  

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