Class Action Lawsuit Claims Microsoft Misled Investors on Surface RT Sales
Class Action Lawsuit Claims Microsoft Misled Investors on Surface RT Sales by UCStrategies Staff
A class-action lawsuit alleges Microsoft of misleading its investors about Surface RT sales and describes the tablet’s entry into the marketplace as an “unmitigated disaster.” The defendants include Microsoft CEO Steven Ballmer, ex-CFO Peter Klein, marketing leader Tami Reller, and chief accounting officer Frank Brod. The complainants are several law firms, including Robbins Geller Rudman & Dowd LLP and Barsamian Mandelcorn & Zeytoonian LLP.
“Unbeknowest to investors, by the end of its March 31, 2013 quarter, Microsoft had amassed a large excess of Surface RT inventory,” the lawsuit claimed. “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 lawsuit also charged, among others, that the Surface RT’s commercial failing was largely attributed to the “limitations” of its Windows RT operating system. It specified such limitation as the absence of certain software functionality, which made the tablets run only pre-installed apps or applications available through the Windows Store.
Microsoft acknowledged the overstocking of Surface RT. It also lowered the price from $349 to $150 for the entry-level Surface model. And to account for the discounts being applied to the tablet line and the unsold inventory, Microsoft posted a charge amounting to $900 million against the company’s second-quarter earnings. The write-off notice of $900 million on July 18, 2013 resulted in an 11.4 percent drop in Microsoft’s share price by next-day trading.
The class-action suit argued that Microsoft was already aware of its Surface RT problem and that it should have reported the loss in this year’s first quarter. The complaint stated, “Defendants knew or recklessly ignored, that the market value of Microsoft's Surface RT inventory had declined precipitously and that the Company, pursuant to applicable accounting rules, was required to write-down the value of its Surface RT inventory during the quarter ended March 31, 2013.”
A Microsoft representative said that the company had no comment on the lawsuit.
In July, it can be remembered that the company turned to the U.S. commercial channel and named three distributors—Ingram Micro, Inc., SYNNEX Corporation, and Tech Data Corporation—to sell Microsoft Surface devices to a select group of commercial resellers, including CDW, CompuCom Systems, Inc., En Pointe Technologies, Insight Enterprises, Inc., PC Connection, Inc., PCM, Inc., Softchoice, Softmart, SHI International Corp., and Zones, Inc. (KOM) Link. Link.