Microsoft is selling out of Surfaces, backorders starting to pile up ahead of retail launch

Microsoft's Surface 2 line of tablets went up for pre-order a few days ago and Neowin is hearing that the tablets are moving faster than Microsoft can produce them. The tablets, which introduce a number of new features including new internals, more storage options and an updated kick-stand, are quickly selling out, according to our sources.

Neowin has heard from several internal sources that the Surface 2 64GB, Surface Pro 2 256GB, Surface Pro 2 512GB, the Type cover in Purple and Black, and the Touch cover, are all backordered. We have also heard that the new Arc Mouse is out of stock as well. 

This is clearly great news for Microsoft as they experienced slow sales with the first iteration of the Surface. If this information pans out and Microsoft truly did sell through its entire initial stock, the first wave of Surface 2 devices appear to be spoken for which will certainly help boost moral in Redmond and Microsoft's bottom line.

We have reached out to Microsoft for comment but have not heard back at this time.

[Update] While we have yet to hear back from Microsoft, they are starting to show 'Out of Stock' for the models we mentioned above.

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Mike Greenway said,
Is it just me or can you read the posts headline and accurately predict what the comments will say?

Pretty much.

I only bought an RT about a month ago - absolutely love the thing, but so tempted to get a 2. My boss is so enamored with my Surface he keeps offering to buy it off me so I can buy the new one haha, still not sure whether to go for it

The writedown on the orignal Surface was a huge success in my country. There currently arent even enough Surface RTs to meet demand. I imagine some of the more interested buyers would be willing to cancel there order of a cheap Surface RT for a Surface 2,

Microsoft would need to make one hundred fold more units to actually be able to sell them at below market value without the risk of folks buying up all the stock and flipping them for a higher price. This is why you won't see a 199$ Surface in the next four years.

So, sounds like internally advertised as sold out/backordered to promote sales - nice marketing technique. Never believe these numbers, let's see some real sales numbers AFTER the device releases.

Yeah.. Surface are selling like hot cakes and after a year later there will be another billion dollar write downs. I think I have heard this before, oh yeah.. Surface fail 1. Don't believe a single word uttered by these MS people.

meh
they will start selling it here after 4 months or so...

its weird such a big company has such a terrible distribution chain

It's all just hype, they're limiting supplies on purpose, oh wait, we're talking about Microsoft, not Apple.

Good for them. I hope the fact that they're using a newer chipset helps. Wasn't Tegra 3 considered "old" when the Surface launched?

Also, I wanted one, but didn't want 1st gen hardware. Im getting a Windows tablet this year, though. And it'll have 8.1, which is good.

The original Surface went to back order the same day it was available for purchase. Without any numbers on the amount being ordered, there is no way to tell how the products are performing.

Leopard Seal said,
The original Surface went to back order the same day it was available for purchase. Without any numbers on the amount being ordered, there is no way to tell how the products are performing.

To paraphrase Mark Twain, "there are lies, damned lies, and PR."

The first Surface was exactly like this as well so I wouldn't read into it too much.

One thing is for sure, Microsoft won't make too many unless demand is there for sure.

WooHoo!!! said,
The first Surface was exactly like this as well so I wouldn't read into it too much.

One thing is for sure, Microsoft won't make too many unless demand is there for sure.

This pretty much sums it up.

anothercookie said,
I hope they are actually keeping their supply short as to not end up with a lot left over.

If they are selling out that makes no sense. They have no 'left over' at the moment regardless of whether supply is high or low.

I.e. by contrast, I could say 'I hope they are keeping huge supply because it's selling out at the moment!'...

headsoup said,

If they are selling out that makes no sense. They have no 'left over' at the moment regardless of whether supply is high or low.

I.e. by contrast, I could say 'I hope they are keeping huge supply because it's selling out at the moment!'...

Except it makes a lot of sense... They can, and seem to have, sell out of the launch supply while still making too many devices.

I would usually go into a full explanation of how this could occur, but the Surface 1 scenario should be fresh in your mind.

It means nothing. I really do hope Surface goes ganbusters this time but they may not have made very many devices for all we know.

If I remember correctly, the original Surface was selling out, yet was written off months later. Hmm. My daughter sells lemonade in front of the house sometimes. I might supply her with 25 cups. 27 neighbors want to buy. Her lemonade looks like a hit, but I tasted it, and it taste like flavored water. A hit? Nope

JHBrown said,
If I remember correctly, the original Surface was selling out, yet was written off months later. Hmm. My daughter sells lemonade in front of the house sometimes. I might supply her with 25 cups. 27 neighbors want to buy. Her lemonade looks like a hit, but I tasted it, and it taste like flavored water. A hit? Nope

How is the Surface like flavored water?

I suspect a snarky bash in there somewhere.. but I don't get it either. Are you saying that they are pulling random parts out of the tablets so they stretch their inventory?

Either way, show your daughter how to make lemonade next time.

JHBrown said,
If I remember correctly, the original Surface was selling out, yet was written off months later. Hmm. My daughter sells lemonade in front of the house sometimes. I might supply her with 25 cups. 27 neighbors want to buy. Her lemonade looks like a hit, but I tasted it, and it taste like flavored water. A hit? Nope

Written down, not written off.

It was a write down and not a write off. If you have to discount to move inventory, you have to write down the reduction in expected profit that you reported to shareholders earlier. A write off is declaring a loss or expense.

Dot Matrix said,

How is the Surface like flavored water?

Depends on who you ask? To some, it's flavored water. To others, its tap water. To a few it's champagne.

You really need to stop spreading wrong information when it comes to accounting. Write off, write down.....absolutely no difference when it comes to the effect on the income statement. When you write down inventory, it's recorded as expense (either as COGS or as a separate expense item). When you write off inventory, the same effect on the income statement. Please stop coming up with your fabricated accounting standards based on your biased infatuation for MS.

doh said,
snip

Sorry, but no. A write off, is as the name suggests, a complete write off. A total loss. A write down is merely a reduced income from what was expected/notified to shareholders previously. You sir are the one fabricating with your trolling nonsense.

doh said,
You really need to stop spreading wrong information when it comes to accounting. Write off, write down.....absolutely no difference when it comes to the effect on the income statement. When you write down inventory, it's recorded as expense (either as COGS or as a separate expense item). When you write off inventory, the same effect on the income statement. Please stop coming up with your fabricated accounting standards based on your biased infatuation for MS.
Well said.

doh said,
You really need to stop spreading wrong information when it comes to accounting. Write off, write down.....absolutely no difference when it comes to the effect on the income statement. When you write down inventory, it's recorded as expense (either as COGS or as a separate expense item). When you write off inventory, the same effect on the income statement. Please stop coming up with your fabricated accounting standards based on your biased infatuation for MS.

No, that's false. Please stop commenting on things you don't understand especially when you can easily look it up.

TCLN Ryster said,

Sorry, but no. A write off, is as the name suggests, a complete write off. A total loss. A write down is merely a reduced income from what was expected/notified to shareholders previously. You sir are the one fabricating with your trolling nonsense.

Go back to accounting 101. What is the difference between a "total loss" and a "reduced income"? In accounting, it's the same effect on the income statement. Accounting is really simple: it's "+" and "-" or debits and credits. No matter how you describe the nature of the transaction (in your case "total loss" vs. "reduced income"), it's only reflected as either a debit or a credit in the income statement. Regarding the write-down of inventory, it's a debit (expense) to the income statement. Nothing more, nothing less. Accounting 101.

Spicoli said,

No, that's false. Please stop commenting on things you don't understand especially when you can easily look it up.

You obviously have no idea what you're talking about. If I remember correctly, you're the one who actually linked Microsoft's 10-Q claiming that the write-off did not relate to inventory when in fact, the 10-Q clearly stated the opposite. Do you even know how to read or comprehend 10-Qs? I read and analyze SEC filings for living and I've been very successful at it for the past couple decades. Please help me understand what was "false" in my last comment.

Spicoli said,

No, that's false. Please stop commenting on things you don't understand especially when you can easily look it up.

Look, I don't care you're a big fan of MS. I have nothing against MS. But I really don't understand why you continue to twist factual information, particularly the $900 million inventory adjustment. In public accounting, a "write-down" and a "write-off" is used interchangeably because they have the same effect on the income statement as previously noted. If you still don't believe me, just ask any accountant or someone with sound accounting knowledge rather than trying to understand something by yourself by looking up in some wiki pages.

doh said,

Look, I don't care you're a big fan of MS. I have nothing against MS. But I really don't understand why you continue to twist factual information, particularly the $900 million inventory adjustment. In public accounting, a "write-down" and a "write-off" is used interchangeably because they have the same effect on the income statement as previously noted. If you still don't believe me, just ask any accountant or someone with sound accounting knowledge rather than trying to understand something by yourself by looking up in some wiki pages.

I'm no accounting dude so please help me clear up my misunderstanding:

For the income statement it sounds correct, but it's future earning where I see a difference.

I.e: Write-off means all future product sales are null, all costs incurred for existing inventory are a loss.
Write-down means there will still be future sales and profits from the existing inventory, but returns will be lower against the same costs going forward.

So the write-down was ~$800Mil, but if it was a write-off it would have been far higher due to remaining stock never being sold? Is that right?

headsoup said,

I'm no accounting dude so please help me clear up my misunderstanding:

For the income statement it sounds correct, but it's future earning where I see a difference.

I.e: Write-off means all future product sales are null, all costs incurred for existing inventory are a loss.
Write-down means there will still be future sales and profits from the existing inventory, but returns will be lower against the same costs going forward.

So the write-down was ~$800Mil, but if it was a write-off it would have been far higher due to remaining stock never being sold? Is that right?

Again, your misunderstanding stems from the notion that a "write-off" is substantially different from a "write-down". The company does not know what the future earnings will be from the sale of these "written-down" or "written-off" inventories. Therefore, it's pointless to define the inventory adjustment as either a write-off or write-down. It's a charge (expense) to the income statement by recognizing the devaluation of inventories. That's all it is: a devaluation of assets based on both historical and anticipated data. To put it simply, if the company has an inventory balance of $100 but determines the market value is only $70, $30 is written off. Now, you can call that $30 as either a write-down or a write-off because all it means is that the asset (inventory) has de-valued by $30. It does not matter what the future sales will bring. Income statement reflects past operating results for a specific duration of time/period, not future expectations.

doh said,

Again, your misunderstanding stems from the notion that a "write-off" is substantially different from a "write-down". The company does not know what the future earnings will be from the sale of these "written-down" or "written-off" inventories. Therefore, it's pointless to define the inventory adjustment as either a write-off or write-down. It's a charge (expense) to the income statement by recognizing the devaluation of inventories. That's all it is: a devaluation of assets based on both historical and anticipated data. To put it simply, if the company has an inventory balance of $100 but determines the market value is only $70, $30 is written off. Now, you can call that $30 as either a write-down or a write-off because all it means is that the asset (inventory) has de-valued by $30. It does not matter what the future sales will bring. Income statement reflects past operating results for a specific duration of time/period, not future expectations.

I think you're off the mark, a write-off is completely removed from the books, it's a pure loss on goods that can't be sold for anything at all, like food that has gone bad and has to be thrown away. A Write-down is when a object is left with a lower value than what it started from originally but it's not completely zero and off the balance sheet.

GP007 said,

I think you're off the mark, a write-off is completely removed from the books, it's a pure loss on goods that can't be sold for anything at all, like food that has gone bad and has to be thrown away. A Write-down is when a object is left with a lower value than what it started from originally but it's not completely zero and off the balance sheet.


Please stop this nonsense about "write-off" vs "write-down". There is absolutely no difference from the financial aspect. Using your analogy, what if the company ends up selling items that were written-off? What happens to the income? Food that has gone bad....what if someone or a company decides to pay a lump sum of money for the "thrown away" food? When an amount of inventory is written off, it's removed off the books as you said. It's removed from the balance sheet as a reduction in assets. When an amount of inventory is written down, the amount is also removed from the books as a reduction in assets (inventory). What the heck is the difference? A write-off of $900 million is exactly same as the a write-down of $900 million on the income statement. You are another one that completely lacks any level of understanding in account principles. This is all basic accounting principles. I can't believe I'm actually spending this amount energy explaining one of the simplest accounting concept.

doh said,

Please stop this nonsense about "write-off" vs "write-down". There is absolutely no difference from the financial aspect. Using your analogy, what if the company ends up selling items that were written-off? What happens to the income? Food that has gone bad....what if someone or a company decides to pay a lump sum of money for the "thrown away" food? When an amount of inventory is written off, it's removed off the books as you said. It's removed from the balance sheet as a reduction in assets. When an amount of inventory is written down, the amount is also removed from the books as a reduction in assets (inventory). What the heck is the difference? A write-off of $900 million is exactly same as the a write-down of $900 million on the income statement. You are another one that completely lacks any level of understanding in account principles. This is all basic accounting principles. I can't believe I'm actually spending this amount energy explaining one of the simplest accounting concept.
Looking at doh's posts, this man clearly knows what he is talking about. Case closed. Write off, write down, same damn thing.

doh said,

Please stop this nonsense about "write-off" vs "write-down". There is absolutely no difference from the financial aspect. Using your analogy, what if the company ends up selling items that were written-off? What happens to the income? Food that has gone bad....what if someone or a company decides to pay a lump sum of money for the "thrown away" food? When an amount of inventory is written off, it's removed off the books as you said. It's removed from the balance sheet as a reduction in assets. When an amount of inventory is written down, the amount is also removed from the books as a reduction in assets (inventory). What the heck is the difference? A write-off of $900 million is exactly same as the a write-down of $900 million on the income statement. You are another one that completely lacks any level of understanding in account principles. This is all basic accounting principles. I can't believe I'm actually spending this amount energy explaining one of the simplest accounting concept.

I'm not questioning the final impact in your income statement, ffs, if someone buys that food from you then you're not going to do a write-off on it anyway. As far as inventory goes a write-off happens on goods that haven't been sold, period and have found their way in the garbage heap. And a write-down happens on inventory you still have in your possession and will sell but at a lower value.

You're the only one between us here who's fixated on the loss listed in the books, I was never talking about that in my post. There's a clear distinction between the two as far as what happens to the inventory in question in the end.

Tomato/Tomato

Actually nice stuff there Doh

On the actual subject i reckon MSFT will have been pretty conservative with their initial sales/production/profit estimates this time round. If the product(s) take off and sell at their repective prices then more inventory can be added but i`m sure they don`t want a similar situation to the initial Surface, especially RT!

doh said,
snip

Sure, at it's most basic level both mean that Microsoft are getting less money than they expected, but financial semantics aside, let me pose this scenario and you can tell me whether I'm right or wrong, because the way I see it there is a financial difference between the two. It's basic mathematics, Some money (write down) > No Money (write off)

Let's talk Surfaces (and these numbers are pure fiction)....

Microsoft manufactures Surfaces. It costs Microsoft $300 to make one and they sell for $500. Each Surface therefore gives Microsoft a $200 profit.

A year after launch, Microsoft are struggling to shift their stock and have 2 million units left in stock. They decide to reduce the selling price to $350 to shift the stock.

Now the way I see it, that is a write down. The investors are now told that they are going to be receiving only $50 profit per device instead of $200. Get that, they're still making a profit.

Now to me, a write off would be like all of those 2 million Surfaces exploding and being consigned to the scrap heap. Essentially a $300 loss per device, a total write off of the inventory.

My simple common sense thinking can clearly see a difference between $50 profit and $300 loss. A $350 per device difference. I'm baffled why you cannot see the same difference.

Can you explain to me how my above reasoning is incorrect please? I genuinely want to know, because to me that seems like logical common sense.

TCLN Ryster said,

snip

Your reasoning is incorrect because the only thing that matters, in reality, is that there is a correction being made to the assets of the company. In reality, it is extremely rare for a company to experience a write off by the strange definition that you, and others, are attempting to portray.

In the example you gave the company will generally receive some level of reimbursement from their insurance company. In the case of product demand issues, like in MS' case, they are generally able to either deeply discount directly, sell off to a liquidator, or sell the parts as scrap. Very rarely do they lose 100%... They may lose 99% or 90%, but rarely 100%.

But as doh has said so many times, this is all uselessly splitting hairs. A write down and a write off are exactly the same thing. Write down is a newer term used to make the impact seem less dramatic to spectators, such as yourself.

The real way of expressing both of these is as simple as these two sentences:

"Microsoft was able to write off the $100 per unit loss it incurred for its surface devices"

"Microsoft took a write down of $100 per unit of previously forecast revenue for its surface units"

Write off basically means the company has "written off" the entire loss they sustained. This loss could be anywhere between 0.00001% or 100%. The write off covers the actual loss sustained.

Accrual accounting is different from the cash based accounting that you probably use to manage your own personal finances. Microsoft had to reduce its assets by the amount of the loss they expected to sustain due to the price adjustment because they had previously accounted for the revenue in projected sales that were added to their assets.

LogicalApex said,

Your reasoning is incorrect because the only thing that matters, in reality, is that there is a correction being made to the assets of the company. In reality, it is extremely rare for a company to experience a write off by the strange definition that you, and others, are attempting to portray.

In the example you gave the company will generally receive some level of reimbursement from their insurance company. In the case of product demand issues, like in MS' case, they are generally able to either deeply discount directly, sell off to a liquidator, or sell the parts as scrap. Very rarely do they lose 100%... They may lose 99% or 90%, but rarely 100%.

But as doh has said so many times, this is all uselessly splitting hairs. A write down and a write off are exactly the same thing. Write down is a newer term used to make the impact seem less dramatic to spectators, such as yourself.

The real way of expressing both of these is as simple as these two sentences:

"Microsoft was able to write off the $100 per unit loss it incurred for its surface devices"

"Microsoft took a write down of $100 per unit of previously forecast revenue for its surface units"

Write off basically means the company has "written off" the entire loss they sustained. This loss could be anywhere between 0.00001% or 100%. The write off covers the actual loss sustained.

Accrual accounting is different from the cash based accounting that you probably use to manage your own personal finances. Microsoft had to reduce its assets by the amount of the loss they expected to sustain due to the price adjustment because they had previously accounted for the revenue in projected sales that were added to their assets.

The way I've always understood it is that in general a write off would imply total loss whereas a write-down means revaluing. To call a write-off on inventory would mean you lost the whole value of that inventory while what MS did was write-down the inventory at it's new value because of the price cuts. I somehow think that if they did a write-off the loss impacted would have been greater than $900million in the end.

But I suppose context and method come into play.

LogicalApex said,

"Microsoft was able to write off the $100 per unit loss it incurred for its surface devices"

"Microsoft took a write down of $100 per unit of previously forecast revenue for its surface units"

But the original post from JHBrown that I disputed was talking about the Surfaces themselves being written off, not the loss in profits being written off. I'm not disputing that the $150 (from my example) in profits was written off, doesn't mean the value of the surface itself was written off though, those were written down.

JHBrown said,
the original Surface was selling out, yet was written off months later

Ergo, the surfaces have been written down, not written off. So explain how I'm incorrect please?

GP007 said,

I'm not questioning the final impact in your income statement, ffs, if someone buys that food from you then you're not going to do a write-off on it anyway. As far as inventory goes a write-off happens on goods that haven't been sold, period and have found their way in the garbage heap. And a write-down happens on inventory you still have in your possession and will sell but at a lower value.

You're the only one between us here who's fixated on the loss listed in the books, I was never talking about that in my post. There's a clear distinction between the two as far as what happens to the inventory in question in the end.

Go visit any big 4 public accounting firm (4 largest in the world) and just ask any auditor if there is a difference between a write-off and a write-down. Absolutely none whatsoever. It's just a reduction in assets and a cost to the company. You're fixated on the notion that when a write-off is recorded, everything disappears. That's not how accounting works. A write-off does not equate a 100% loss to a particular product but a certain reduction in asset (product) valuation.

TCLN Ryster said,

Sure, at it's most basic level both mean that Microsoft are getting less money than they expected, but financial semantics aside, let me pose this scenario and you can tell me whether I'm right or wrong, because the way I see it there is a financial difference between the two. It's basic mathematics, Some money (write down) > No Money (write off)

Let's talk Surfaces (and these numbers are pure fiction)....

Microsoft manufactures Surfaces. It costs Microsoft $300 to make one and they sell for $500. Each Surface therefore gives Microsoft a $200 profit.

A year after launch, Microsoft are struggling to shift their stock and have 2 million units left in stock. They decide to reduce the selling price to $350 to shift the stock.

Now the way I see it, that is a write down. The investors are now told that they are going to be receiving only $50 profit per device instead of $200. Get that, they're still making a profit.

Now to me, a write off would be like all of those 2 million Surfaces exploding and being consigned to the scrap heap. Essentially a $300 loss per device, a total write off of the inventory.

My simple common sense thinking can clearly see a difference between $50 profit and $300 loss. A $350 per device difference. I'm baffled why you cannot see the same difference.

Can you explain to me how my above reasoning is incorrect please? I genuinely want to know, because to me that seems like logical common sense.

Again, and again, your analogy does not work. In your example of a "write-down", nothing will be recorded as a write-down since MS is able to sell the product above its cost ($300). If MS is able to sell the product above its cost, why would there be any write-down to the inventory? Inventory is recorded at cost ($300). If it's sold at $350, there is a gross profit of $50. That's it. There is no write-down or a write-off. You don't write-down an assets just because a selling price has decreased. You write-down an asset because the asset has incurred a devaluation (it's not worth the cost already incurred). The most common way of determining inventory devaluation is by examining an inventory turnover ratio. If a particular product has been sitting on the floor for an extended period of time, an accountant determines that the product is deemed to have lost its value, and therefore, adjusts its book value. That adjustment is called either a write-down or a write-off. Obviously, accounting is not your forte. I am done giving accounting 101 lectures here. Go visit a local college and enroll in an accounting class for further information.

GP007 said,

The way I've always understood it is that in general a write off would imply total loss whereas a write-down means revaluing. To call a write-off on inventory would mean you lost the whole value of that inventory while what MS did was write-down the inventory at it's new value because of the price cuts. I somehow think that if they did a write-off the loss impacted would have been greater than $900million in the end.

But I suppose context and method come into play.

Re-read your own writing. You're saying that the company would not have written off the product if someone was going to buy it. How the heck does the company know if a product is going to be sold or not in the future? Do they have some kind of a time machine that they're 100% sure the products will be sold in the future? For those "written-down" products, what if they never get sold? Writing off something does not mean it will end up in a garbage bin. I can write off a 10% of the inventory or a 90% of the inventory. If you want to call that a write-down, be my guest.

Hopefully those ordering the RT, know that's what they're getting. As for the Pro, don't know about consumers but everyone in the Enterprise who sees one, wants it.

Spicoli said,
They'll probably be a lot more conservative on ordering this time so shortages may last until demand stabilizes.

I'm sure they're ordering more Pro2s compared to Surface 2s unlike last time. But yeah, if we hear about repeating stock shortages then they're definitely ordering less to start and then see where demand goes.

Once again the Surface Pro with the higher storage seems to be what most people want, that or MS just played it really safe and made few of each. Still, when you market the Pro2 at pros that like to do real work it makes sense they are the ones with the money and the bigger storage needs. They really shouldn't have made a 64GB Pro2 model at this point and just started it at $899 for the 128GB model and up.

GP007 said,
Once again the Surface Pro with the higher storage seems to be what most people want, that or MS just played it really safe and made few of each. Still, when you market the Pro2 at pros that like to do real work it makes sense they are the ones with the money and the bigger storage needs. They really shouldn't have made a 64GB Pro2 model at this point and just started it at $899 for the 128GB model and up.

But this way they can say, 'starts at' £719... a better hook.

Ezekiel Carsella said,
Happened with the pro too but it didn't sell that well. Hopefully this will be different since it looks great.

The Pro 2 should sell better, the key problem with the original, the bad battery, has been fixed and not only that but you get better performance in the end.

I know that but then they upped price by $100. Still I do see all of the upgrades and I don't hate the Pro 2. In fact I desperately want one but the price is too much

The Surface Pro 2 is selling at the exact same price the original Surface Pro was selling at. The Surface 2 is selling at $50 less than the original Surface.

Dot Matrix said,
Great news!

Bad news, I was actually considering finally buying one, a Pro 2 anyway.. eyeballing a laptop whose time has come.

I hope they do better this time, but remember the surface one also went into back order and then they had too many.
Have to make sure that does not happen again!

Ryan Bowden said,
I hope they do better this time, but remember the surface one also went into back order and then they had too many.
Have to make sure that does not happen again!

That's why they do pre-orders in advance. They can adjust their production to make more Pros if that's what's selling more and not get left with stock of models that don't which is what happened with the Surface RT.

Also this time around they've opened it up to more markets and other retailers/resellers from the get go so that should add to it. Not only are customers buying them from MS directly but resellers are placing batch orders at a discounted price to then resell on to others.