Microsoft Corp.'s foray into the tablet computer market proved costly in the fourth quarter. The world's largest software company booked a $900 million write-down to account for the deep price cut it applied to its Surface RT tablet this week, a move to spur sales amid sluggish demand.

The Redmond, Wash.-based software giant cut the Surface RT's price to $349. The $150-per-device cut contributed to fourth quarter earnings that fell short of Wall Street forecasts, but even without the charge, earnings would have missed expectations.

Stock drops Microsoft stock took a big hit on Friday on the news of softer than expected earnings. Microsoft "struggled far more than we had expected," said Cowen & Co. analyst Gregg Moskowitz, who downgraded the company's stock to "Neutral" from "Buy," and cut his price target to $33 from $38. The analyst said in a note to investors that he is "much less confident" that the company can deliver healthy growth in the near future due to the magnitude of the Windows decline, the challenges for Surface, pressure on profit margins and the company's reorganization plans. Shares fell $4.01, or 11.3 per cent, to $31.43 US in afternoon trading.

Microsoft also saw revenue from its flagship Windows operating system decline six per cent after excluding the late recognition of revenue from last year when it offered discounted upgrades to users of older systems.

The reception to its latest operating system, Windows 8, has been poor and the results reflected that. Analysts believe the new operating system is contributing to the longest slump in personal computer sales.

Net income $4.97B US

Microsoft shares fell 3.5 per cent to $34.19 in after-hours trading after the results came out.

Despite weakness in key areas, revenue and profitability improved in Microsoft's other lines of business, including enterprise software, servers and tools, the Xbox video game division and the Bing search unit.

Net income in the April-June quarter came to $4.97 billion US, or 59 cents per share, reversing a loss of $492 million a year ago when it wrote down almost the entire value of its 2007 purchase of online ad service aQuantive.

Excluding the Surface charge, earnings were 66 cents per share, short of the 75 cents per share expected by analysts polled by FactSet.

Revenue grew 10 per cent to $19.90 billion, also below the $20.72 million expected.