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Microsoft losing money on Surface tablets

Wednesday, 31 Jul 2013 | 10:14 AM ET
David Paul Morris | Bloomberg | Getty Images

Microsoft's Surface tablets have yet to make any profit, as sputtering sales have been eclipsed by advertising costs and an accounting charge, according to the software company's annual report.

The two tablet models, introduced in October and February to challenge Apple's popular iPad, have so far brought in revenue of $853 million, Microsoft revealed for the first time in its annual report filed with regulators on Tuesday.

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Analysts Brent Thill of UBS and Walter Pritchard of Citi have the play on the Internet giant's earnings and outlook.

That is less than the $900 million charge Microsoft announced earlier this month to write down the value of unsold Surface RT —the tablet's first model—still on its hands.

On top of that, Microsoft said its sales and marketing expenses increased $1.4 billion, or 10 percent, because of the huge advertising campaigns for Windows 8 and Surface. It also identified Surface as one of the reasons its overall production costs rose.

The Surface is Microsoft's first foray into making its own computers after years of focusing on software, but its first attempts have not won over consumers. By comparison, Apple sold almost $24 billion worth of iPads over the last three quarters.

—By Reuters.

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