Microsoft sued by shareholders over misleading Surface sales 'disaster'

Shareholders claim violations of securities laws over Surface sales 'disaster' secrecy

Software giant Microsoft is being sued by a group of stockholders who claim the company misled them over the true parlous state of Surface RT tablet computer sales.

They claim the company had led shareholders to believe that the launch of the Surface RT, Microsoft's first genuine foray into tablet computing, running on ARM rather than Intel, "had been executed in a measured and conservative fashion".

Instead, they claim Microsoft management "knew, but failed to disclose to investors... that Microsoft's foray into the tablet market was an unmitigated disaster, which left it with a large accumulation of excess, over-valued Surface RT inventory".

The Surface RT runs a version of Windows 8 designed specifically for the ARM chip architecture. However, other Windows applications are not compatible with it and buyers of the Surface RT can only run applications on it that have been purchased or downloaded via Microsoft's own online store.

In the second quarter of the year, the company sold just 900,000 units, despite an expensive promotional campaign, and accounted for just 0.2 per cent of the tablet computer market.

The company wrote-down $900m in losses on the Surface RT line in its results to the end of June after revealing how poor sales of the device had been. It also slashed its price in a bid to shift unsold stock.

Between March 2013, when the true scale of the disaster was obviously apparent to Microsoft's management, and the beginning of July, when Microsoft's last financial results were unveiled, it is claimed that Microsoft effectively misled investors by failing to disclose the truth.

When Microsoft did finally disclose how poor sales of the Surface RT had been - on 18 July - its stock price fell by 11.4 per cent, according to the complaint.

The legal action is being led by law firm Robbins Geller Rudman & Dowd.

In a bid to shift stock, Microsoft has switched from a largely direct sales strategy back to the channel. It has lined up nine major distributors in the UK - including Computacenter, Insight, SCC, Kelway, Misco, Phoenix Software, Softcat, SoftwareONE and CCS Media - to support a pilot programme.