Microsoft revealed it spent more money on advertising Surface and Windows 8 than it brought in on Surface sales last year.
In a public 10-K filing report to the US Securities and Exchange Commission, the software giant unveiled Surface sales stats for the first time, disclosing in its FY13 ending 30 June the RT and Pro devices brought in $853m (£561m).
In its fiscal year results announced earlier this month, Microsoft said it incurred a $900m writedown charge for the consumer-focused RT tablets alone, a figure $47m higher than the combined sales total of RT and Pro devices.
On top of this, Microsoft said its sales and marketing spend increased by a whopping $1bn, driven primarily by a $898m in advertising costs for Surface and Windows 8 combined.
That means Microsoft spent $45m more on advertising for Surface and Windows 8 than it brought in in sales for the tablets.
In the report, Microsoft outlined a range of risks factors the business faces, including that it could make significant investments in products – such as the Surface – which do not turn out to be profitable.
"[One risk is that] we will continue to invest in new software and hardware products, services and technologies, such as the Microsoft-designed and manufactured Surface launched in October 2012," the report read. "We may not achieve significant revenue from new product, service, and distribution channel investments for a number of years, if at all.
"Moreover, new products and services may not be profitable, and even if they are profitable, operating margins for some new products and businesses will not be as high as the margins we have experienced historically."
The Surface route-to-market strategy has been criticised by many in the channel since the first version of the RT tablet launched last autumn. Initially, Microsoft refused to say whether the channel would ever get to sell it, and when it eventually announced a channel distribution plan at its Worldwide Partner Conference this month, it added that just a handful of resellers could sell it in each country to start with, which prompted more VAR grumbling.
Context's founder Jeremy Davies described the recent revelation on Surface sales a "spectacular disaster".
"Microsoft had to tell the world what is going on. The truth has finally come out, but nobody realised the scale of the problem," he said.
"The fact they had the [stock] writedown – which was absolutely enormous – confirmed all the rumours they produced millions of these things. The original rumour was that they were being very selective in producing them, and selective in the channels they were using, and not going for high volume – but it is completely the opposite.
"They were producing high volumes and trying to get it out there, but they just failed. It is a bit of a spectacular disaster to be honest."
Davies added that retailers and channel firms may be reluctant to sell the Surface for fear of jeopardising good existing relationships with OEM partners.
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