Microsoft Corporation (MSFT): Device Lawsuit and the Truth About Xbox and Kinect

Microsoft Corporation (NASDAQ:MSFT) has been seeing some new interest in the company and the stock over the last few weeks (not that we’re saying the interest is necessarily positive), after  CEO Steve Ballmer reorganized the company and Microsoft launched its Xbox One gaming and entertainment console, not to mention the slowly  growing  market share for the Windows Phone 8 operating system, which now takes up half of the market that is not committed to iOS or Android.

One area where Microsoft Corporation (NASDAQ:MSFT) has taken it on the chin has been its big consumer  venture, the new Windows 8 operating system and especially its Surface tablet computer – the company’s first foray into proprietary hardware. Is it not enough that Redmond posted a write-off of nearly $1 billion over unused Surface stock as consequence enough for the problems with the tablet?

Uh, not quite.

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You know, it’s one thing to underestimate  sales numbers for a new device, but with the amount of the write-off that Microsoft had for the Surface tablet went beyond just a simple miscalculation, according to several lawyers in their class-action lawsuit claim filed in federal court this week, reported by Gregg Keizer of Computerworld via the website Neowin. Saying that the Surface tablet is an “unmitigated disaster,” the lawyers have filed a class-action lawsuit claiming that Microsoft misled investors  by  exaggerating sales of Surface tablets. Ballmer, former CFO Peter Klein and company marketing chief Tami Reller are also named in the lawsuit individually.

Microsoft and the top executives named personally in the filing “caused Microsoft to issue materially false and misleading financial statements and financial disclosures for the quarter ended March 31, 2013 … (Their) materially false and misleading conduct enabled Microsoft to forestall Surface RT’s day of reckoning and delay what would be tantamount to an admission by the Company that (the Surface RT) had been a failure.”

If the court approved the class for the lawsuit, it would consist of stockholders between April 18 and July 18, the day that Microsoft Corporation (NASDAQ:MSFT) acknowledged the $900 million write-off on the Surface tablet. The lawsuit claims that Microsoft knew about the losses well in advance and should have performed the write-down during the March quarter according to accounting regulations and practices, instead of waiting until the June quarter. When the write-off was announced, Microsoft stock plunged more than 11 percent that day.

Xbox One: Need to Connect with Kinect?

James Delahunty of Afterdawn reported this week on the latest backtrack by Microsoft Corporation (NASDAQ:MSFT) regarding its Xbox One entertainment console, which is due to hit store shelves this fall for the holiday shopping season. The very loyal gaming community cried foul over the price, then over restrictions regarding pre-owned or after-market games, and there it was revealed that Microsoft  would require that the included Kinect device would need to be on at all times in order for the console to work properly. Considering that Kinect collects user data and this is in the wake of the revelation of the National Security Agency’s surveillance program – and Microsoft’s implied complicity with the program – it seemed natural that future Xbox One consumers would be fit to be tied.

Delahunty reported that Microsoft has again backtracked, saying now that the Kinect does not need to be on at all times, and that the console will work properly without it. The Kinect, of course, would only need to be on for activities that specifically require the device to operate. Xbox One platform designer Marc Whittne, however, did say in an interview that Kinect  will not be off as a default; the device would need to be turned off manually in the settings menu. However, anything that requires the sensor (voice, gesture, etc.) would not work. Whitten went on to ad, though, that if a user wants to enter a Kinect-exclusive  game, the console will ask the user if it wants to turn Kinect on before continuing. So there’s that.

When the hedge-fund quarterly filings are released later this month, what would you expect  of investors in Microsoft Corporation (NASDAQ:MSFT) stock like fund manager David Einhorn? Are they holding, or bailing? What would you be doing if you had the chance right now? Before you give us your thoughts in the comments section below, take a look at a recent comparison TV ad for the Surface against the Apple Inc. (NASDAQ:AAPL) iPad.


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