Nvidia CEO Teases Surface RT 2

Slow sales have failed to sink Microsoft’s Surface RT.

Microsoft and chip maker Nvidia are working on a follow-up to the Surface RT tablet, a flop that took a bite out of the software giant’s latest earnings. Santa Clara, Calif.-based Nvidia provides the ARM-based chips used in the first Surface RT, which was released during the splashy Windows 8 launch on Oct. 26.

Nvidia is “working really hard” on a new Surface tablet, its CEO Jen-Hsun Huang told CNET’s Shara Tibken. And this time around, the companies are hoping that the collaboration will yield a more successful product, he indicated.

Microsoft fell short of analyst estimates for its fiscal 2013 fourth quarter, due partly to a massive write-off related to Surface RT.

Microsoft Chief Financial Officer Amy Hood said during a July 18 earnings call, “We reduced the price of Surface RT by $150, to $349 per device. As a result of this price change, as well as inventory adjustments for related parts and accessories, we recorded a $900 million charge to our income statement.”

Financial services firm UBS estimated that Microsoft only managed to sell 1 million Surface RT tablets during the last quarter of 2012, far short of the 2 million units that the company was expecting to deliver into consumers’ hands. Hood expected the Surface RT price drop to brighten its future. “While this resulted in a -$0.07 [per share] impact on earnings, we believe this pricing adjustment will accelerate Surface RT adoption and position us better for long-term success,” she said.

Microsoft slashed prices by $150 in mid-July to spur demand. The base 32GB version (without a keyboard cover) now retails for $349, down from $499. Even at a discount, roadblocks to broader adoption linger. These include limited connectivity options and questionable value to enterprises.

Application support is also a concern. Unlike most x86-based Windows PCs and Microsoft’s own Surface Pro tablet, Surface RT can only run new ARM-friendly, Windows 8-style apps. In effect, most of Windows’ sprawling software ecosystem is off limits to the tablet.

CEO Steve Ballmer later chimed in during an internal town hall meeting at the Microsoft campus. “We built a few more devices than we could sell,” Ballmer is quoted as saying in a July 26 report in The Verge.

According to Huang, Surface RT failed to gain traction because of Outlook’s notable absence at launch. “It is the killer app for Windows,” he said. History will not repeat with Surface RT’s successor, Huang said.

“Now we’re going to bring it with the second-generation Surface. We’re working really hard on it, and we hope that it’s going to be a big success,” Huang told CNET.

New Surface hardware is expected to roll out this fall, perhaps to coincide with the release of Windows 8.1. In addition to updated technical specs, Microsoft is reportedly readying a 7-inch Surface RT slate to cash in on the mini tablet craze.