Microsoft faces claims it duped investors over Surface RT sales

Software giant Microsoft is facing legal action over allegations it lied about the number of RT Surface tablet devices it has sold. The firm announced last month that it had taken a $900m charge related to inventory adjustments for its Surface RT tablet. The charge had an impact of $0.07 per share.

Now, a filing to the US District Court in Massachusetts by Robbins Geller Rudman & Dowd LLP on behalf of Microsoft shareholder Gail Fialkov alleged that Microsoft knew that the tablets were not selling well, but published misleading statements to investors.

“Unbeknownst to investors by the end of March 31, 2013 quarter, Microsoft had amassed a large excess of Surface RT inventory,” the filing read.

“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 misleading statements materially misrepresented the true financial effect that Surface RT was then having on the Company’s operations.”

The firm launched the Surface tablet in October last year, its first foray into the tablet hardware market. However, research firm IDC estimated last month that Microsoft had shipped just 900,000 units in the first quarter of 2013.

According to the filing, shareholders were led to believe that the launch of the Surface had been executed in a “measured and conservative fashion” in order to gradually observe the progress of the venture, but instead Microsoft knew but failed to disclose to investors, that the foray was an “unmitigated disaster”, which left it with a “large accumulation of excess, over-valued Surface RT inventory”.

With such a large Surface RT inventory, Microsoft began giving consumers a free magnetic keyboard and tablet cover worth $100 and later slashed the tablet’s price by 30 per cent, but neither move resulted in generating meaningful sales, the filing claimed.

The plaintiff is seeking to recover damages on behalf of all purchasers of Microsoft common stock during the class period.