Analyst credits Surface sell-out to Microsoft swinging conservative

Analyst credits Surface sell-out to Microsoft swinging conservative

Built too many one year, too few the next: 'Welcome to the hardware business,' says expert

Microsoft's Surface tablets were in short supply Monday, with most models out of stock on the company's online store.

Of the various SKUs (stock-keeping units) of the Surface, nee Surface RT; Surface 2; and Surface Pro 2, only the 64GB Surface and the 128GB Surface Pro 2 were available for ordering from Microsoft's e-market as of 3 p.m. ET.

Other retailers were also short of the devices, which Microsoft has marketed as hybrids that combine characteristics of tablets and, when equipped with an optional keyboard, a traditional notebook PC.

Best Buy, which is Microsoft's most important retail partner in the U.S. -- the Redmond, Wash. company has spent millions morphing the personal computer sections of Best Buy into Microsoft-branded stores-within-stores -- also had limited inventory of the Surface.

The chain's online store was out of both Surface 2 SKUs, and for the Surface Pro 2, all but the 128GB configuration. The first-generation Surface was available online, however. Spot checks conducted by Computerworld also found that most of the brick-and-mortar Best Buy stores were sans Surface 2 and Surface Pro 2 for local pickup.

The shortages did not surprise Ezra Gottheil, an analyst with Technology Business Research.

"Everybody scaled back production," said Gottheil in an interview. "Not just Microsoft. Last year, everyone thought that Windows 8 was going to make everyone whole. This year, every company went at this quarter a lot more conservatively."

Although other OEMs (original equipment manufacturers) that rely on Windows over-ordered for the 2012 holiday sales season, Microsoft's optimism was so over the top that it had to eat $900 million, more than it reaped in revenue from the Surface brand, to account for the price cuts necessary to unload excess Surface RT tablets.

Microsoft is still selling the Surface RT, renamed as simply "Surface."

"Microsoft certainly looked at sales projections for 2013 with a much more careful eye," said Gottheil. "So [Surface] may be doing well, but that's probably compared to a much lower projected sales figure this year."

And if the outages at its online store and retail partners are any clue, this year it swung the build pendulum too far the other way.

"Welcome to the hardware business," said Gottheil when asked whether Microsoft messed up yet again. "Everyone is in the same boat. The direction of the consumer market is very hard to predict. It has to do with [product] buzz and confidence in the economy, and what else is out there for holiday shoppers. It's very challenging to nail."

Without knowing the number of Surface tablets that Microsoft ordered from contract builders -- a secret the company will never divulge -- it's impossible to know for certain how the brand is doing this quarter, even with the sell-outs. Analysts like Gottheil will see a hint next month when Microsoft releases its financial figures for the fourth quarter, but even then, the company will only disclose dollar revenue, not unit sales.

But as Gottheil pointed out, Microsoft's not alone in going conservative for the 2013 holidays.

"None of the OEMs have a lot of confidence in Windows right now," Gottheil asserted. "Last year, there were a lot of expectations that Windows 8 would drive sales. In hindsight, that was not a reasonable expectation."

And he was optimistic, if not for the final few months of 2013, then for next year. "The Surface initiated a wave of updates and changes [to form factors], and I think its positioning of the Surface as 'a PC inside' is smart," said Gottheil. "I think that's going to be successful next year."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is

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