Another BlackBerry inventory write down?

BlackBerry Bold 9900 Box
By Chris Umiastowski on 29 May 2012 01:44 pm EDT
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Bloomberg's Hugo Miller wrote a story today that pretty much says RIM will be taking another inventory write down when the company reports Q1 results later in June. According to the Bloomberg piece, lots of analysts see the risk of a write down because RIM still carries more inventory today than it did last year. And that's unusual for a company going through a sales decline (even if the decline ends up being temporary, which is open to much debate).

RIM has over a billion dollars of inventory on hand and a whole bunch of inventory they've previously written down over the last two quarters. Remember in Q3 when the firm wrote off $485 million of BlackBerry PlayBook inventory and then in Q4 it wrote off $267 million of (mostly) BlackBerry 7 inventory?

I'm not too interested in a deep dive into the inventory that they hold versus what they should hold. But I will give you one figure. Days inventory is a metric to express how many days worth of sales a company holds in parts, work in progress and finished goods. RIM has 32 days of inventory using numbers from the last quarter (financial fanatics: I didn't use average inventory over the year because of the skewing effect the write down would have on the calc).

Is that too high? In a normal business environment it isn't. I've followed many companies who carried over 100 days of inventory and rarely had to write off anything. But those were in boring markets like PBX equipment. But for RIM, even one month of inventory may be too much. RIM is in anything other than a normal business environment. Sales in the US are weak, not having bounced back as the company initially hoped when it launched (and ramped up production for) BB7 products.

So I do think its entirely possible, even likely, that another inventory revaluation will happen. But there are a couple of important points to make about it.

First, it's important for remember that asset write downs do not consume any cash. They are non-cash charges that reflect mistakes from past spending (i.e. buying stuff they couldn't sell). Its yet another backwards looking business indicator, jusy like the expected restructuring. These things very often come together as a big dumping of restructuring events.

Second, I think the value of any write down will be small potatoes. Yes, that's my "official forecast". Seriously folks. RIM holds a month of inventory on hand. Yeah, I know carriers also have about another 4 weeks of inventory on their balance sheets, but it's not like sales of BB7 have stopped. They're still fairly strong in many markets, and inventory in weak markets is already pretty darn thin.

Finally, NONE of it changes the outcome for RIM, which depends strongly on BlackBerry 10 hitting the market. And its another good reminder that RIM can't afford to keep us waiting much longer.

Reader comments

Another BlackBerry inventory write down?

53 Comments

they keep coming up with low-end phones, that reinvent the low-end. THis damages the BB brand image, which has been taking a beating for almost 2y with unfinished/uncompetitive products.

I have struggled to understand that myself but I guess RIM have done the math and decided it made sense.
If you really need to write down inventory why not offer that lower end market the better hardware? Surely that is good for brand perception. Also at the sharper end of the market, BB7 phones are rather pricey for (fairly old)devices about to be written down. Either the Bloomberg article is BS and there is no imminent write down or RIM continue dropping the ball.

I'd LOVE to buy 9900 if right price as I'd have to pay full price .... actually I'd buy 3 (gf, and daughter too).

I don't think you understand how businesses work. There are different kinds of market and target groups. Apple, for example, serves only the premium market. BlackBerry, on the other hand, caters to high end and low end markets. This is something that BlackBerry is good at, by re-inventing the low-end time and again, they've been able to attract people who are still using feature phones. Also, such product offerings might be considered middle range products in some developing countries. So these factors need to be kept in mind.

I'm surprised that some people (even journalists) want BlackBerry to only make High-end devices without knowing the reasons why it hasn't decided to do so.

I remember Thor mentioning in an interview/speech that If and when BlackBerry 10 is licensed to other manufactures, RIM will only concentrate on the high-end market, allowing the other manufacturers to make phones for the low-end.

If that is the case, which I reckon it is, I don't think RIM understand how businesses work: If you want to cater the high end and premium market and you charge high end and premium prices, you need to deliver high end and premium products. If you charge premium and deliver medium you will have to write inventory down.
My 9860 was released last summer and could not match other premium and high end devices within its price range. The same is with the 9900, which I have seen advertised in the same price frame as iphone 4s and Galaxy SII. It is not only me who thinks it can not match its high end competitors.
You can not ask $600 for a 7" half baked tablet, no matter how good you think it is, what really matters is how good the public thinks it is. Drop de price and sell like chips, quod erat demostrandum.
BTW: Release BB10 soon! Tomorrow might be too late.

Do you think BMW would remain alive if they just sold the Rolce Royce and totally ignore the market for the 1 and 3 series?

Congratulations! Since you were first to comment on this post, and you said first, you win a BlackBerry 7 phone of your choice, along with a BlackBerry 10 phone when in comes avaliable!

"First, it's important for remember that asset write downs do not consume any cash. They are non-cash charges that reflect mistakes from past spending.."

"Second, I think the value of any write down will be small potatoes."

Inventory write downs do not consume any cash now because they have already consumed cash. Therefore, one must look at the opportunity cost here.

OPPORTUNITY COST

What else could have RIM spent this money on?

Possibly another acquisition, more research and development, repurchasing of shares, MARKETING,.. The list can go on and on. But my main point is that with RIM being in a market where innovation, product differentiation, product placement is so important this in my opinion is a big mistake.

I know that hindsight is 20/20, but it clearly shows that planning, execution and inventory management is something that RIM did NOT succeed in.

Going forward, I hope that RIM focuses on inventory management. Apple is putting a lot of resources into inventory management, as it knows that it is a key aspect of the business.

If RIM does go ahead with this write down, this will be the third consecutive quarter of inventory write downs; which have become larger and larger each quarter. This begs the question:

IF RIM IS WRITING DOWN INVENTORY, DOESN'T THIS MEAN IT IS SELLING LESS AND LESS UNITS?

It must be selling less and less units. Therefore, decreasing revenue due to less unit sales, decreasing margins, means less income. RIM announced on the last earnings call that it will not longer provide specific quantitative guidance. This is because it is focused on a long-term value creation strategy. And their long-term strategy, in my opinion, will be exiting the hardware manufacturing business.

The quicker they move forward by announcing partnerships in respect to hardware, and share their specific strategy to their current investors, potential investors and consumers; the better this will be for all (including RIM).

Thanks,
Martin.
Twitter: @SurrealCivic

Everything that you mentioned in your post has already been mentioned in articles related to RIM since 4 months back. The point of this post was that writing down inventory and lay offs are a clear indication of a mistake IN THE PAST (Which Thor has already acknowledged).

I don't see opportunity cost being much of a problem here, RIM has a good amount of cash on hand. Of course some more cash wouldn't hurt, but hey! who wouldn't want more cash?

Regarding BlackBerry selling less and less units, well Thank You Captain Obvious! They have been selling less units, which is why they are in trouble aren't they? You little genius youuu :D

Thanks for reading my comment.

No one mentions about the loss in their hardware unit.

What I want to reiterate is the fact that less and less revenue, lower margins, and inventory write downs lead to income losses.

Q4 FY 2012 had $4.2 billion in revenue, down 19% from previous quarter which was $5.2 billion in revenue. Compared year-over-year revenue is down 25%
which was $5.6 billion (Q4 FY 2011).

This resulted, on a non-adjusted GAAP basis, of a LOSS of $125 million or $0.24 per share. This is because of a $485 million inventory write down
for PlayBooks and a $50 million charge due the three day outage. If these adjustments weren't necessary, RIM would of made $418 million on $4.2 billion
in revenue.

Now, with the news coming out today of another inventory write down which could be more than double of the previous write down.

WHAT WILL HAPPEN IN THE FUTURE? ANOTHER LOSS FORTHCOMING FOR RIM?

Since RIM announced last quarter they will cease to provide specific quantitative guidance, and hence they didn't provide any for Q1 FY 2013,
we are left to come to our own conclusions based on assumptions and historical numbers.

Therefore, it is very likely that RIM will again incur a loss (on a non-adjusted GAAP basis) but this time it could be a lot more than last quarter.

Thanks,
Martin

Twitter: @SurrealCivic

"If these adjustments weren't necessary, RIM would of made $418 million on $4.2 billion in revenue."

While I follow what you are saying, I'm curious as to where you get the pro forma adjusted net income of $418 million from? Net loss of $125m + $485m inventory writedown and $50m outage charge = $410 million. When you include the tax effect (assuming a 35% corporate tax), their pro forma net earnings would have been somewhere in the neighborhood of $266 million. Yes, still better than a net loss... but not the $418 million you noted in above.

Wonder if there will be another fire sale on the PlayBooks. I would love to get a few more for testing!

Sucroid.com - Sweet apps for the fans

And yet they *still* cannot deliver the frigging PlayBook keyboard, the one item in their current catalog that people actually want. Of which they appear to have *no* inventory.

Amazing. These guys could screw up a one-car funeral.

depscribe

The PlayBook keyboard is in very high demand. It is selling out everywhere. I think it far exceeded RIM's expectations for sales.

I must say it is very well engineered. It is worth the wait.

Chris, I have to say I enjoy reading your articles. Thank you.

I must say that I've used all the OS7 devices I'm aware of:
Bold 9900/9930
Torch 9810
Torch full screen
Curve 9360

and they are very nice devices. The browser is nice, the typing is awesome, the e-mail is the best for me, phone, durability, etc. All very good. However, I think RIM dropped the ball on the Torch Full Screen. It seems that device was designed for a physical keyboard but just does not have one.
It is not like the Playbook, a true touch screen device. It still runs largely from menus and no keyboard to boost productivity.
Besides the Torch 9810, that has AF, I think RIM would serve themselves, and many users a favor if they introduced the AF Bold 9930/9900. The pictures on my Bold are fine but they are not awesome.
I think if they tweaked the camera on any future OS7,8,etc. upgrades, it would still be a very compelling device, even after the BB10 launch. I seriously want a BB10 devices but I can't part with the keyboard of my Bold 9900 (I'll probably buy one but keep my Bold). After typing on that thing nothing else really matters to me. However, to the articles point. What matters is selling it to a larger audience.

Sorry guerllamo7 but I have a Torch 9860 (no keyboard). I totally love it, and it would be pointless if it did have a keyboard! The Bold 9900 already covers this need quite well. The screen is wonderfully large and browsing totally rocks in landscape mode!

If you want a keyboard device, RIM does make the sweet 9900 and 9810 as well. Those three BB7 devices cover the full gamut for most users, with the 9810 being the hybrid.

There is no need to release a new 9900 in the face of delaying the BB10 devices. I think RIM manufactured way too many Curves in the past 6 months, which probably also delayed BB10. How much are these Curves selling for? $0? Let's not repeat this mistake again!

Curves do sell for less than the Bold/Torch models but they also cost less to produce. Also, Curves are highly popular where RIM is currently doing well. Another thing to note is that many of the people working on BB7 are different than those working on BB10.

The funny thing about the camera is that my wife and I were taking pictures of our dog the other day. She was using an iPhone 4S and I was using a Bold 9930. My pictures came out sooooo much better because hers were blurring because the dog wasn't sitting still and her phone was trying to focus and missing that perfect shot. The Bold takes a picture immediately when you want it to and I was getting great pictures.

I understand that there are a ton of situations where the iPhone camera is better, but there is no doubt about the Bold camera being one of the fastest if not the fastest camera on any phone out there.

Yes, bit off topic, but I agree with you, guerllamo7. My 9900 camera is ok, but AF option would be nice (perhaps defeatble) as the EDOF does make taking quick pics very easy.

I just at opportunity to try using 9900, iPhone 4S, and Samsung Galaxy S, and for photos I liked the BB best (this was in a dark venue/concert situation - for well lit situations I assume the iPhone would be best). The iPhone sound is THE BEST. I've heard it on many recordings and it really is a good audio recorder via the video cam.

I am super impressed with BB cam though for it's quick ease of use, and quick capture of acceptable and better photos.

The Galaxy on the other hand, sucked! Terrible sound (though not as bad as a BB). And even when the autofocus was 'green', all photos were never in focus. What's up with that? Maybe it's a defective one.

Anyhow, if BB10 phones come with great camera and sound capture I won't look at any other.

Folks, I think the news will get worse before it gets better. The closer we get to the BB10 launch the more people will wait with any phone upgrade/purchase. RIM would do well to offer BB7 devices (99xx please) at a discount that would keep many of us happy until launch date.

No excuse for selling the 9900 for 600 bucks or 300 bucks with a 2 year upgrade on T-Mobile. I will hang on to my 9780 til BB10 comes out or they drop the price considerably on the 9900.

RIM needs a bridge the sales gap between now and the launch of BB10. Something like " Anyone that buys a new OS7 BB will get a $XXXXX credit towards a BB10 phone".

This is actually a great idea!

It is a win-win-win situation, for RIM, the carrier, and the consumer.

I hope that the new Chief Marketing Officer will come up with some drastic measures similar to your idea.

How is RIM responsible for TMobiles pricing? Sprint sells the 9930 for $499. Which is retail price after the standard mark up from wholesale. Verizon has it for $509. AT&T and TMobile are adding mark up from retail to pluck more money out of pockets just like Radio Shack, and Best Buy. Retail + $100_150 markup. RIM is not responsible for how much money the carriers want to get out of you for contract/no contract pricing of products.

There's excess inventory because nobody in the market is going to pick a platform that has been destined for obsolescence. Purchasing a OS7 device now should be done only in time of desperation.

This is why OS7 devices aren't moving. However, this is a prime time for RIM to do some P.R. work. If they know they're going to get nailed to the wall with these phones sitting in inventory being unsellable. Then, Give them away! BB user on OS6 or earlier debating going elsewhere? why not give them a free OS7 Bold if they promise another 2-3 years on contract, that way when BB10 is released, they have an installation base of contracts, and people who will want to buy BB10.

Part of Zara's success is their ability to place the right product in the right market at the right price. Their internal logistics makes them able to bring new collections every 15 days if necessary and move product around to the perfect spot.
If BB7 is nearly over in most of the developed world, bring its price down, take it somewhere else with the right price and get rid of your inventory, make cash, it will narrow your margins, but do not think you have much choice after you have already screwed up.
BB Bold 9900 @ £549.95 (Carphone Warehouse UK)
Iphone 4S 16G @ £489.99 (Carphone Warehouse UK)
Samsung Galaxy SII @ £479.95 (Carphone Warehouse UK)

BlackBerry 7 was not a failure at all; it was just too late to the market.

BlackBerry 7 is basically a more refined BlackBerry 4.6 (which first launched with the BlackBerry Bold 9000 back in 2008). But basically, it is the same operating system.

In the past, RIM did not focus on software. Therefore, it took them a long time in between software releases which also included massive amount of time of carrier testing.

This has changed, with QNX-based BlackBerry OS 10 (current BlackBerry PlayBook OS) full focus is on software. Updates come more frequently now, and do not need the carrier testing that was involved with previous versions of the BlackBerry OS.

Therefore, my point is that BlackBerry 7 was not a failure. They have gone as far as they could with a JVM based operating system, it just took them to long to bring it to market.

OS7 was a failure. While there was no inherrent failings of OS7, it failed due to lame duck syndrome.

you cannot announce the "next best thing in mobile platforms", tell everyone "soon(tm)", but then tell everyone they NEED to buy this stop gap device that right from the start, wont be upgradable to the new expected OS, and can't compete with the offerings of the other companies.

The technical aspects of OS7 were irrelevant. It was a lame duck.

Just give it up. If it was a failure the tech sites would have been all over that. It's a success to me. I love my 9900.

I would be surprised, actually shocked, if they announce an inventory writedown. Improving investory management was something they discussed in the Q4 earnings announcement.

Inventory levels over the last five quarters
Q4 2012 - 1.027B
Q3 2012 - 868.00M
Q2 2012 - 1.372B
Q1 2012 - 943.00M
Q4 2011 - 618.00M

I am not shocked at all. One CrackBerry member comments said it best:

"There's excess inventory because nobody in the market is going to pick a platform that has been destined for obsolescence."

They are selling less and less devices each quarter, and revenue is falling approx. 20% quarter-over-quarter. No matter how much resources you spend on inventory management, if units are not selling within the time frame that you set; you are going to have a write down.

RIM was suppose to have BB10 phones Q1 and now its Q3/4. BB faithful are wating and aside from enterprise, not many are upgrading to OS7. Delays are very costly, my friend was waiting for BB10 and went to Android, will he be back? Don't know...

No one in there right mind would buy an obsolete OS7 phone in a country that actually matters when the new ones come out. I for one hope every shop in North America and the non crazy countries in the rest of the world strips all BB's that aren't. BB10 when they come out.
Also they better stop coming out with so many dammed form factors, pick at most 2, that's it. Full touch, one keyboard.

You don't leave a small piece of cancer to remain, get rid of them, all of them.

Two forms of BB10 phones. Period. But in the emerging markets, where iphone/galaxy/Bold are having issues with price point, more models are needed.

I wonder if thats where the OS7 stuff will end up?

China is the mystery. How long until the knockoff's kill everyone?

I myself am hoping BB10 has a model with keyboard sooner than later.

Drop the prices already! I would gladly go out and spend $200 on a new Bold 9900 out of contract. $200 is better than $0 or a loss.

Unless your in the meetings with the CEO and board, then speculation is the best we can do. All phones do similar things but in different ways. I can get Poynt on android and Blackberry. I can purchase songs, look at projects, and even watch Youtube videos on both platforms. I could even bet that IPhone can do these things too. The few things though, Blackberry is good at, in my opinion, is the security and messaging hardware. I just love their physical keyboards. Yes I'm in the minority even in my house.....All my kids love Android and the platform really has some good apps for fun.....My Blackberry suits my needs just fine. I love my BB keyboard and wouldn't trade it for any other phone.....My feeling of attachment to the Blackberry brand cannot be broken easily. RIM is going through a great deal of change right now and they have to balance or juggle a lot of stuff in the air. I'm saving my money for the BB10 platform on my next physical keyboard......Waiting waiting waiting waiting and still waiting........

What did they expect?! They announced BBX BEFORE they had released BB7! They then proceeded to drive expectation through the roof on BBX while trying to sell an inferior BB7. I'm a huge blackberry fan, but they have had their heads so far up their asses for so long they 're beginning to think they can see in the dark.

Well said; it's amazing however that this simple concept can not be understood by the vast majority of posters on Crackberry forums.

I hope they bring the price of playbook down to 200 in Australia so I can buy another one. It's ridiculous that they launched the wake up campaign but they r still selling playbook for 500 bux. I think it's RIM who needs to wake up!!

This past weekend,I was out partying with friends and my beloved, trustworthy, almost 3 year old 9700 went into a bucket of ice (or freezing water I must say).

Usually when this happens, people use it as an excuse to "upgrade." I felt extremely uncomfortable when I realized that I would have to pay around $500 for an almost "ancient" device. I had initially planned to wait till BB10 to upgrade, but this incident had me thinking how on earth could I justify paying around $500 for any OS7 devices when in reality they're really not close to be being worth that much all at the same time while their new devices are around the corner. While I've used the 9900/9790 and I think they're fantastic devices, the price point to pay for those devices is way too much, hence why I and many others are either:

A) Jumping ship (Android, Apple)
B) Holding off till BB10

Clearly, this is one of the main reasons why sales are going down.

Finally, the 9700 went into a bag of oats (not recommended), a few blow drying sessions, cleaning it with rubbing alcohol, a few unbricking attempt sessions, and a couple of days, my beloved 9700 made a miraculous full recovery. I'm happy to report that I'm now gladly back at point "B" as mentioned above :)