Microsoft faces lawsuit over Surface RT struggles as company preps Oct. 17 launch of Windows 8.1
Even as it prepares a critical update to its Windows 8 platform, Microsoft has become the target of a lawsuit alleging that the software giant misled investors regarding both Windows RT and the Surface RT device it released last year.
The lawsuit [PDF via TechCrunch] is a class action complaint filed in the United States District Court for the District of Massachusetts. The complaint alleges that Microsoft violated the federal securities laws with the way that it handled informing investors of the progress of the Surface RT tablet it released late last year.
The filing claims that Microsoft "led the market to believe that [its] launch of the Surface RT had been executed in a measured and conservative fashion so that it could observe and understand its progress and outcome." Instead, though, the suit calls the Surface RT launch "an unmitigated disaster, which left it with a large accumulation of excess, over-valued Surface RT inventory."
The suit goes on to claim that Microsoft issued "materially false and misleading financial statements and financial disclosures" regarding the real financial impact the Surface RT's underperformance was having on the company. Microsoft finally wrote down $900 million on the failed device at the end of the most recent quarter, and the company's stock plunged $4.04 per share, or 11.4 percent, eliminating roughly $34 billion of Microsoft's market value.
The suit also names a number of Microsoft's executives as defendants, including CEO Steve Ballmer and CFO Peter S. Klein. According to the filing, those individual defendants "are liable as participants in a fraudulent scheme and course of conduct that operated as a fraud or deceit on purchasers of Microsoft common stock" due to their sharing of information the suit deems "false and misleading," as well as their alleged "concealment" of other information.
Windows RT, a pared-down version of Windows meant to run on ARM-powered devices, was meant to give Microsoft a foothold in that low-power device market and serve as a bulwark against Apple's dominance in the segment. The operating system, though, debuted to consumer yawns and confusion, and Microsoft has been struggling to generate interest since.
Windows RT's full-powered counterpart, Windows 8, has seen little more luck as consumers are increasingly opting for Android and iOS-powered phones and tablets instead. Microsoft announced on Wednesday that a long-awaited update would arrive on October 17 under the moniker Windows 8.1. That update will give consumers the option to bypass Microsoft's "Modern" touch-centric interface in favor of the more familiar desktop layout.
The failure of the Surface RT is similar in some ways to that of Research In Motion's (now BlackBerry) PlayBook tablet. After the release of Apple's iPad in 2010, RIM attempted to roll out its own tablet device in order to capture a portion of that segment. The PlayBook sold just a half-million devices in its first quarter of availability, a quarter-million in the quarter after that, and 150,000 in the quarter following. RIM eventually took a writedown of $485 million on unsold inventory, and the company has been reluctant to re-enter the tablet market since.
Microsoft is thought to have sold a bit over 1.5 million units in total of its entire Surface line, which includes both the Surface Pro and the Surface RT. While the software giant hasn't released a detailed breakdown of Surface device sales, the majority of that 1.5 million figure is believed to consist of Surface Pro sales.
The lawsuit, filed on August 12, seeks class action status and unspecified compensatory damages.
The lawsuit [PDF via TechCrunch] is a class action complaint filed in the United States District Court for the District of Massachusetts. The complaint alleges that Microsoft violated the federal securities laws with the way that it handled informing investors of the progress of the Surface RT tablet it released late last year.
The filing claims that Microsoft "led the market to believe that [its] launch of the Surface RT had been executed in a measured and conservative fashion so that it could observe and understand its progress and outcome." Instead, though, the suit calls the Surface RT launch "an unmitigated disaster, which left it with a large accumulation of excess, over-valued Surface RT inventory."
The suit goes on to claim that Microsoft issued "materially false and misleading financial statements and financial disclosures" regarding the real financial impact the Surface RT's underperformance was having on the company. Microsoft finally wrote down $900 million on the failed device at the end of the most recent quarter, and the company's stock plunged $4.04 per share, or 11.4 percent, eliminating roughly $34 billion of Microsoft's market value.
The suit also names a number of Microsoft's executives as defendants, including CEO Steve Ballmer and CFO Peter S. Klein. According to the filing, those individual defendants "are liable as participants in a fraudulent scheme and course of conduct that operated as a fraud or deceit on purchasers of Microsoft common stock" due to their sharing of information the suit deems "false and misleading," as well as their alleged "concealment" of other information.
Windows RT, a pared-down version of Windows meant to run on ARM-powered devices, was meant to give Microsoft a foothold in that low-power device market and serve as a bulwark against Apple's dominance in the segment. The operating system, though, debuted to consumer yawns and confusion, and Microsoft has been struggling to generate interest since.
Windows RT's full-powered counterpart, Windows 8, has seen little more luck as consumers are increasingly opting for Android and iOS-powered phones and tablets instead. Microsoft announced on Wednesday that a long-awaited update would arrive on October 17 under the moniker Windows 8.1. That update will give consumers the option to bypass Microsoft's "Modern" touch-centric interface in favor of the more familiar desktop layout.
The failure of the Surface RT is similar in some ways to that of Research In Motion's (now BlackBerry) PlayBook tablet. After the release of Apple's iPad in 2010, RIM attempted to roll out its own tablet device in order to capture a portion of that segment. The PlayBook sold just a half-million devices in its first quarter of availability, a quarter-million in the quarter after that, and 150,000 in the quarter following. RIM eventually took a writedown of $485 million on unsold inventory, and the company has been reluctant to re-enter the tablet market since.
Microsoft is thought to have sold a bit over 1.5 million units in total of its entire Surface line, which includes both the Surface Pro and the Surface RT. While the software giant hasn't released a detailed breakdown of Surface device sales, the majority of that 1.5 million figure is believed to consist of Surface Pro sales.
The lawsuit, filed on August 12, seeks class action status and unspecified compensatory damages.
Comments
Quote:
Originally Posted by Suddenly Newton
Isn't this lawsuit saying Microsoft knowingly created the Surface RT to fail? Is that what the plaintiffs allege? Or that they failed to accurately gauge demand?
I think the thrust of the argument is that Microsoft concealed the scope and nature of the failure from shareholders.
From what I understand, they inflated the sales numbers and hid the unsold inventory (because if that got out it would be a PR disaster), but that they actually have a contractual and legal obligation *not* to do that in regards the shareholders. The shareholders are saying they had a right to know there were multiple millions of unsold units instead of the half million that MS said there was.
I don't think either of those is correct.
What the lawsuit alleges is that Microsoft promised shareholders that they were going to enter the market with very measured, conservative, small steps. When you do that, you minimize the risk of failure, although you may not be able to respond fast enough if the product catches on quickly. The lawsuit then alleges that even after telling investors that they were proceeding slowly, they actually proceeded rapidly, investing in enormous amount of inventory.
If they had TOLD investors that they were gambling on a big success, it would not be an issue - whether it failed or not. The issue is rather that they didn't do what they told the investors they were going to do.
Quote:
Originally Posted by jragosta
I don't think either of those is correct.
What the lawsuit alleges is that Microsoft promised shareholders that they were going to enter the market with very measured, conservative, small steps. When you do that, you minimize the risk of failure, although you may not be able to respond fast enough if the product catches on quickly. The lawsuit then alleges that even after telling investors that they were proceeding slowly, they actually proceeded rapidly, investing in enormous amount of inventory.
If they had TOLD investors that they were gambling on a big success, it would not be an issue - whether it failed or not. The issue is rather that they didn't do what they told the investors they were going to do.
In other words investors were misled which is what the articles states in black and white.
Might this bring a push to get Ballmer out? Will be interesting to see if any details come out on what went on "behind the scenes" at Microsoft regarding this.
(I assumed from first glance at the headline that Microsoft was being sued over Surface ripping off Logitech's Ultrathin iPad keyboard covers. Then again, Logitech's actually work in your lap.)
"Have you seen the latest "sold" sales number - oh Frack we are screwed"
"Don't worry we will hide the truth by telling them we have sold millions like everyone else, we just won't say its to the sales channel"
Perhaps lying about sales numbers will actually become a criminal offense and we can finally base our investment decisions on real numbers? Don't hold you breath
Might this bring a push to get Ballmer out? Will be interesting to see if any details come out on what went on "behind the scenes" at Microsoft regarding this.
Originally Posted by TheUnfetteredMind
Might this bring a push to get Ballmer out?
Sure hope not.
Read the lawsuit, The suite claims a $34 billion drop in stock value when the financial cover up became public.
Microsoft is being sued for Securities fraud. They allegedly misrepresented the sales volume of the new Surface to investors. They are accused of factually lying about their economic performance to protect Microsoft's stock price from losses. Whether or not the Surface is a worthwhile product is not the issue. The issue is a corporation fraudulently misrepresenting information that is critical to investors decision to invest money in Microsoft via stock. Microsoft has built an empire on selling copycat, second rate, deeply flawed products via market manipulation. They have left a mile-wide swath of cheated companies, intentionally ruined to fuel Microsoft's profits.
Investors and the Securities and Exchange Commission have good reason to hold Microsoft responsible for allegedly lying to investors for profit.
From the Law-suite:
9. Unbeknownst to investors, by the end of its March 31, 2013 quarter, Microsoft had amassed a large excess of Surface RT inventory. In violation of the Company’s publicly disclosed inventory accounting policy, generally accepted accounting principles (“GAAP”) and SEC rules and regulations, Defendants caused Microsoft to issue materially false and misleading financial statements and financial disclosures for the quarter ended March 31, 2013. These false and misleading statements materially misrepresented the true financial effect that Surface RT was then having on the Company’s operations.
10. 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.
11. Saddled with bloated inventory of unwanted Surface RT tablets, Defendants, in the Spring of 2013, hopelessly tried to spur market demand. First, Microsoft gave consumers a free magnetic cover that doubles as a keyboard – a deal that amounted to a $100.00 discount off the combined $600.00 price tag for the cover and Surface RT. Later, Microsoft slashed the price of the Surface RT tablet by 30%. Neither of these initiatives generated meaningful sales of Surface RT.
12. Then, on July 18, 2013, Microsoft issued a press release announcing that its financial results for the quarter ended June 30, 2013 had been adversely impacted by a $900 million charge related to a write-down in the value of its Surface RT inventory. In truth, however, the value of such inventory was materially impaired by March 31, 2013.
13. On this news, Microsoft common stock suffered its biggest price decline in more than four years, plunging $4.04 per share, or 11.4%, on very heavy trading volume to close at $31.40 per share.
Quote:
Originally Posted by Suddenly Newton
Isn't this lawsuit saying Microsoft knowingly created the Surface RT to fail? Is that what the plaintiffs allege? Or that they failed to accurately gauge demand?
Re-read the article and read SLOWLY. You may have to actually read the court documents since things get twisted up by journalists with no legalese background.
Read the lawsuit
Sued for Securities Fraud, not making crapy products or mishandling their inventory.
Microsoft is accused of lying about their economic performance to protect Microsoft's stock price from losses. Whether or not the Surface is a worthwhile product is not the issue. The issue is a corporation fraudulently misrepresenting information that is critical to investors decision to invest money in Microsoft via stock. Microsoft has built an empire on selling copycat, second rate, deeply flawed products via market manipulation. They have left a mile-wide swath of cheated companies, intentionally ruined to fuel Microsoft's profits. Investors and the Securities and Exchange Commission have good reason to hold Microsoft responsible for allegedly lying to investors for profit.
The Law-suite claims a $34 billion drop in stock value when the financial cover up became public.
From the Law-suite:
9. Unbeknownst to investors, by the end of its March 31, 2013 quarter, Microsoft had amassed a large excess of Surface RT inventory. In violation of the Company’s publicly disclosed inventory accounting policy, generally accepted accounting principles (“GAAP”) and SEC rules and regulations, Defendants caused Microsoft to issue materially false and misleading financial statements and financial disclosures for the quarter ended March 31, 2013. These false and misleading statements materially misrepresented the true financial effect that Surface RT was then having on the Company’s operations.
10. 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.
11. Saddled with bloated inventory of unwanted Surface RT tablets, Defendants, in the Spring of 2013, hopelessly tried to spur market demand. First, Microsoft gave consumers a free magnetic cover that doubles as a keyboard – a deal that amounted to a $100.00 discount off the combined $600.00 price tag for the cover and Surface RT. Later, Microsoft slashed the price of the Surface RT tablet by 30%. Neither of these initiatives generated meaningful sales of Surface RT.
12. Then, on July 18, 2013, Microsoft issued a press release announcing that its financial results for the quarter ended June 30, 2013 had been adversely impacted by a $900 million charge related to a write-down in the value of its Surface RT inventory. In truth, however, the value of such inventory was materially impaired by March 31, 2013.
13. On this news, Microsoft common stock suffered its biggest price decline in more than four years, plunging $4.04 per share, or 11.4%, on very heavy trading volume to close at $31.40 per share.
http://seattletimes.wpengine.netdna-cdn.com/microsoftpri0/files/2013/08/MicrosoftComplaint.pdf
The fact that they named Ballmer et. al. personally in the lawsuit is pretty meaningless, this effort is unlikely to succeed. Corporate shield, and all that. They'd have a steep slope to climb and would have to allege pretty much criminal conduct. And I don't think this is Enron.
Officers get named personally in lawsuits all the time; it doesn't mean it's going to succeed.
That actually has very little impact on the lawsuit and is rarely grounds for having the entire suit dropped. Rather, the individuals will file to have their names removed - and probably in. The suit against defendant Microsoft will probably be allowed to proceed.