Microsoft has been accused of deliberately hiding the poor sales of its Surface RT tablet. The claim comes in a class action suit on behalf of shareholders.
The RT models run a stripped down alternative to Windows 8 that can only run apps from the Windows Store rather than users installing software downloaded directly from the developer. It’s no secret that the device has sold poorly and fell below expectations, though the first official word from Microsoft on the subject came with a recent $900 million writedown.
That’s a change to the company’s accounts to reflect that it assets — in this case, unsold RT tablets — are worth less than previously expected. It’s partly because Microsoft has now cut the prices of the device, and partly because it’s now a possibility some of the stock may never sell. How bad the actual sales numbers really are is disputable, but the mathematics of the price cut and write down suggest Microsoft made far more units than it could sell.
The class action suit gets far more specific though. It claims Microsoft knew how bad things were at the end of March and didn’t mention it in quarterly performance figures:
What Defendants knew, but failed to disclose to investors, however, was that Microsoft’s foray into the tablet market was an unmitigated disaster, which left it with a large accumulation of excess, over-valued Surface RT inventory. Defendants’ materially false and misleading conduct enabled Microsoft to forestall Surface RT’s day of reckoning and delay what would be tantamount to an admission by the Company that its all-important entry into the tablet market had been a failure.
The specific claim is that Microsoft knew in March that it was unrealistic to continue valuing the remaining stock at its original price, but that it delayed this until the next set of accounts, covering the April to June period.
It’s an incredible serious allegation as failing to mention such a key development would violate its legal duty to keep shareholders and potential investors informed about factors that could affect the stock price.
The court filing notes that the stock price plunge on the day Microsoft announced the writedown “eviscerated about $34 billion of the Company’s market value.” Of course, such a slump would likely have happened had the announcement been made earlier, but people who bought the stock between the two quarterly reports may feel they’ve losses that wouldn’t have happened if Microsoft had spoken up earlier.