Lower than expected sales impact profit margin.
Microsoft’s quarterly earnings have been seriously affected by a $900m (£591m) charge for inventory writedowns due to worse than expected tablet sales.
The huge hit to its profit margin was partly alleviated by $782m income from people upgrading Microsoft Office, meaning it still made a $4.5bn profit in the three months ending June 30.
The company is thought to have sold only around 1m of its Surface tablets, equivalent to just 2% of the global market, dominated by Apple’s iPad products and tablets running Google’s Android software.
It is believed to have sold 260,000 Surface RT, which cannot run older third-party Windows programs, and 750,000 Surface Pros, which are able to.
However, despite an 11% revenue growth to $19.9bn shares still fell 7%.
Microsoft cut the price of the Surface RT last week and is reportedly still committed to the tablet, hoping the slashed cost will encourage more people to buy it and catalyse demand for the product.
However, the number of available apps for the Surface are still relatively low, at 100,000 nine months since it launched.
CEO Steve Ballmer said: "We are working hard to deliver compelling new devices and high value experiences from Microsoft and ourpartners in the coming months, including new Windows 8.1 tablets and PCs.
"Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most."