It’s not enough that Microsoft is losing money like a drunken sailor stuck with a truckload of unsalable Surface tablets, now they’re facing a class-action lawsuit over them:
The issue at hand is that Microsoft took an externally unexpected $900 million charge relating to the value of its Surface RT inventory during its fiscal fourth quarter. Surface RT is Microsoft’s first tablet hybrid, marking its entry into parts of the OEM space that it had not tread before.
Sales, it seems, were low. This led to Microsoft revaluing its inventory, forcing it to write down $900 million. However, the lawsuit claims that Microsoft knew that the Surface RT was in trouble long before, and therefore it committed fraud by not telling investors that its tablet was struggling during its fiscal third quarter.
The $900 million writedown led to an earnings miss for Microsoft. The company’s stock fell more than 11 percent the next day, erasing north of $30 billion in market share. The bent of the lawsuit is therefore simple: If Microsoft did not faithfully report the performance of the Surface RT, in spoken and written word, and in sworn accounting testimony, investors were duped into thinking that all was well regarding the Surface project. Or at least that things weren’t dire enough to warrant a near $1 billion charge.
I don’t know if the suit has any real merits, although I doubt it. But I can tell you one thing for sure. Any investor — especially any institutional investor — who didn’t realize the Surface RT was trouble, isn’t savvy enough to be dealing with tech stocks. Period.