Microsoft CEO Ballmer Fesses Up, Admits To Overestimating Surface Demand


In a town-hall meeting with employees on Friday, Microsoft CEO Steve Ballmer acknowledged that Microsoft overestimated demand for its Surface tablets and ended up making too many of them.

"We built a few more devices than we could sell," Ballmer said in the meeting, as reported by The Verge.

Microsoft slashed its pricing for Surface RT by 30 percent earlier this month, then revealed a $900 million charge last week during its fourth-quarter earnings that reflected the price cut.

[Related: Microsoft Slashes Surface RT Prices]

Microsoft's bid to follow Apple's lead by selling Surface tablets only through retail has missed the mark, Majdi Daher, founder and CEO of Denali Advanced Integration, a Redmond, Wash.-based Microsoft partner, told CRN.

That said, Apple sold 14.6 million iPads during the quarter, while Wall Street analysts were expecting it to sell around 18 million iPads.

This unexpected slowdown, and Google's inability to penetrate the enterprise and commercial tablet markets, shows that Microsoft still has an opportunity with Surface tablets, Daher said.

"Microsoft is well positioned to gain significant share in that space, but only if they create a partner program that enables companies like us to take that strategy to the enterprise and commercial space," said Daher.

"The overriding problem with Surface was that no one wanted Windows RT, as it can't run the millions of existing Windows apps," Marc Harrison, president of Silicon East, a Manalapan, N.J.-based Microsoft partner, said in an email.

In the town hall, Ballmer also confirmed that Microsoft is testing new Surface devices with "incremental improvements," according to The Verge, which has previously reported that these devices will run on Qualcomm's new Snapdragon 800 processor.

Microsoft couldn't be reached for comment on the topics reportedly discussed at the town hall meeting.

There's a case to be made that Microsoft's distribution strategy for Surface tablets is behind some of the problems. Microsoft initially sold Surface tablets only through retail, and last month extended its scope to include 10 large account resellers in the U.S.

Microsoft's broader channel still can't sell Surface, but Microsoft COO Kevin Turner says partners are welcome to bring customers into Microsoft retail stores to check out the tablet and other Microsoft products.

In the town hall, Ballmer also revealed that Windows, in all its different flavors, isn’t selling as well as Microsoft would like, the Microsoft blog Neowin reported Friday.

Windows client division revenue declined 5 percent year over year in Microsoft's fourth quarter, which has been the case for several quarters; Microsoft said weak consumer PC sales were to blame.

In Microsoft's earnings call, CFO Amy Hood said the company is "working to transition this business into the modern era" with Windows 8.

Tom Spring contributed to this story.

PUBLISHED JULY 26, 2013