Lawyers sue Microsoft over Surface RT 'unmitigated disaster' - "knew of tablet's failure months before taking massive write-off"
Lawyers sue Microsoft over Surface RT 'unmitigated
disaster'
Allege that execs knew of tablet's failure months before
taking massive write-off, deceiving investors
By Gregg Keizer, Computerworld
August 13, 2013 04:06 PM ET
Computerworld - Several law firms joined forces on Monday
to sue Microsoft, accusing the company of misleading shareholders about sales
of the Surface RT tablet and calling its entry into the market an
"unmitigated disaster."
The lawsuit, which seeks class-action status, named
several Microsoft executives as co-defendants, including CEO Steve Ballmer,
former CFO Peter Klein, current marketing leader Tami Reller, and Frank Brod,
the firm's chief accounting officer.
"Defendants caused Microsoft to issue materially
false and misleading financial statements and financial disclosures for the
quarter ended March 31, 2013," the lawsuit charged. "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."
Neowin.net first reported on the complaint earlier today.
Last month, Microsoft acknowledged that it had
overstocked its Surface RT inventory, and reduced the price by $150 to $349 for
the entry-level model. To account for the discounting, as well as excess
inventory of components and accessories, Microsoft recorded a $900 million
charge against earnings in the second quarter.
In the same regulatory filing, Microsoft said that
revenue generated by its tablet line -- which includes the more-expensive
Surface Pro as well as the Surface RT -- had totaled $853 million since the
October 2012 launch.
Last month was the first time Microsoft publicly
disclosed Surface revenue. It has never revealed unit sales, although research
firm IDC has estimated that the company shipped approximately 2.1 million of
the devices between late October 2012 and the end of June 2013.
The lawsuit contended that Microsoft knew of its Surface
RT problem long before, and should have written off the loss in the first
quarter of 2013.
"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," the complaint stated.
After Microsoft's July 18 notice that it had taken a $900
million write-off, the company's share price plunged by 11.4% in next-day
trading. The stock has not yet recovered: As of 3 p.m. ET, shares were off 8.6%
compared to the July 18 closing price.
The class, if certified by the court, would be comprised
of stockholders who purchased Microsoft shares between April 18 and July 18,
inclusive.
Several law firms were listed on the complaint, which was
filed with a Massachusetts federal court. Among them are Robbins Geller Rudman
& Dowd LLP, of San Diego, Calif., and Hutchings Barsamian Mandelcorn &
Zeytoonian LLP, of Wellesley Hills, Mass.
Microsoft declined to comment today when asked to respond
to the complaint.
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