RIM Announces Third Quarter Provision Related To PlayBook Inventory; Provides Update to Q3 and Fiscal 2012 Guidance

By Bla1ze on 2 Dec 2011 07:27 am EST


The press release is below. For CrackBerry's insight on what it all means, read this editorial by our in-house Stock Guru, Chris Umiastowski.

Press Release

Research In Motion Announces Third Quarter Provision Related To PlayBook Inventory and Confirms Commitment to Tablet Market; Provides Update to Q3 and Fiscal 2012 Guidance

Waterloo, ON - Research In Motion Limited (RIM) (Nasdaq: RIMM; TSX: RIM), a world leader in the mobile communications market, today announced that it would record a pre-tax provision in the third quarter of fiscal 2012 of approximately $485 million, $360 million after tax, related to its inventory valuation of BlackBerry PlayBook tablets.  The charge is expected to be predominantly non-cash.  All figures in this release are in U.S. Dollars and U.S. GAAP, except where otherwise indicated.

As previously disclosed, RIM has a high level of BlackBerry PlayBook inventory.  The Company now believes that an increase in promotional activity is required to drive sell-through to end customers.  This is due to several factors, including recent shifts in the competitive dynamics of the tablet market and a delay in the release of the PlayBook OS 2.0 software.  As a result, RIM will record a provision that reflects the current market environment and allows it to expand upon the aggressive level of promotional activity recently employed by the Company in order to drive PlayBook adoption around the world.

Based on the positive response to the promotions that are underway in select markets, RIM believes this strategy will accelerate adoption of its QNX-based platform by consumers and enterprises, as well as help to drive the development of a vibrant application ecosystem in advance of its next generation BlackBerry smartphones.  RIM sold into the channels approximately 150,000 BlackBerry PlayBook tablets in the third quarter and sell-through to end customers, based on RIM’s internal data, was higher than this amount.  Since the launch of the new promotions across consumer and enterprise channels in the United States and Canada late in the third quarter, the Company has seen a significant increase in demand for the PlayBook.  Both consumer and enterprise customers who purchase a new BlackBerry PlayBook at the current promotional pricing, along with existing PlayBook customers, will be able to upgrade to the enhanced PlayBook OS 2.0 software at no additional charge when it becomes available in February 2012.

“RIM is committed to the BlackBerry PlayBook and believes the tablet market is still in its infancy. Although a number of factors have led to the need for an inventory provision in the third quarter, we believe the PlayBook, which will be further enhanced with the upcoming PlayBook OS 2.0 software, is a compelling tablet for consumers that also offers unique security and manageability features for the enterprise,” said Mike Lazaridis, Co-CEO at Research In Motion. “Early results from recent PlayBook promotions indicate a significant increase in demand across most channels.  We look forward to continuing to grow the installed base of PlayBook users and to attracting more and more developers to expand the volume of applications, content and services that leverage the power of the industry leading QNX-based platform.” 

Updated Third Quarter Fiscal 2012 Guidance and Outlook

While the Company is still in the process of finalizing its third quarter financial results, the Company shipped approximately 14.1 million BlackBerry smartphones in the third quarter ended November 26, 2011 which was in line with previous guidance of between 13.5-14.5 million.  Adjusted revenue in the third quarter, excluding a charge against revenue of approximately $50 million related to the service outage that occurred in the quarter, is expected to be slightly lower than the previously guided range of $5.3-5.6 billion, reflecting product mix and the impact of PlayBook sell-through programs in the quarter.   Gross margin is expected to be in line with previous guidance of approximately 37%.  Excluding the PlayBook provision and the outage related impact described above, RIM expects adjusted diluted earnings per share in the third quarter to be at the low to mid point of the $1.20-$1.40 per share range it previously guided.  The Company’s cash balance at the end of the quarter increased by approximately $80 million to approximately $1.5 billion.  The Company is still in the process of finalizing its fourth quarter outlook, and based on preliminary estimates, RIM expects unit shipments in the fourth quarter to be below third quarter levels.  The lower expected shipments in the fourth quarter are due to several factors including lower than expected sell-through in the third quarter and RIM’s current view of fourth quarter demand.  The Company no longer expects to meet its full year adjusted diluted earnings per share guidance of $5.25-6.00.  

Note: Adjusted diluted earnings per share and adjusted revenue do not have any standardized meaning prescribed by GAAP and thus are not comparable to similarly titled measures presented by other issuers.  The Company believes that the use of adjusted diluted earnings per share and adjusted revenue enables the Company and its shareholders to better assess RIM's operating results relative to its operating results in prior periods and improves the comparability of the information presented.  Investors should consider RIM’s use of non-GAAP financial measures in the context of RIM's GAAP results.  A reconciliation of adjusted diluted earnings per share and adjusted revenue to GAAP diluted earnings per share and GAAP revenue will be included when RIM releases its financial results for the third quarter of fiscal 2012 on December 15, 2011.

Q3 Results Conference Call Details

RIM will be reporting results for the third quarter of fiscal 2012 on December 15, 2011 after the close of the market. The Company will discuss today’s announcement, third quarter fiscal 2012 results, and the outlook for the fourth quarter of fiscal 2012 on a conference call and live webcast beginning at 5 pm ET, December 15, 2011.  The call can be accessed by dialing 1-800-814-4859 or at www.rim.com/investors/events/index.shtml.  A replay of the conference call will also be available at approximately 7 pm by dialing 1-416-640-1917 and entering passcode 4466493#.  A replay of the webcast will be available clicking the link above. The replay will be available until midnight ET December 29, 2011.  The conference call will also appear on the RIM website live at 5 pm ET and will be archived at http://www.rim.com/investors/events/index.shtml.

Reader comments

RIM Announces Third Quarter Provision Related To PlayBook Inventory; Provides Update to Q3 and Fiscal 2012 Guidance


Whats that about being able to upgrade at no additional cost? They were planing to charge us for OS 2.0 ???

why not?
users always have to pay for new systems for lion i had to pay 120$ and I think that you also have to pay for a windows upgrade

I can understand where this thought came from

Weird, Apple sold lion for 30 bucks, maybe you bought yours from a retailer (or some bad friend).

And, they can't charge for an update that contains mostly things they promised to give us with the PB more than a year ago.

Thanks for your answer Roscopcoletrain.

Apple has charged for iPod OS upgrades in the past. RIM was most likely distancing themselves from that, while using it as a marketing opportunity to look good (not that it has given the whole OS 2.0 debacle).

You seriously got ripped off if you paid $120 for Lion, considering it was never ever priced above $30.

The above was most likely the original Leopard version of OS X which did sell at retail for that price. Lion on the other hand doesn't have a retail box version as of yet.

Was most likely a brain-fart, happens to me was well.

In this case RIM would have met with a catastrophy by making users pay for an OS upgrade that included features they promised to have been included already.

[b]Oh, you want what we promised? Pay extra! [/b]

Upgrading from windows 95 to xp to 7, yea, that was charged because it is a whole new product basically. You arent charged for those weekly micro-updates microsoft keeps pumping out because it is minor changes to an existing OS. I dare say, gmc would be in heap big trouble if tbey sold their cars without a back seat, offering free delivery of it to your housea week later, then 6 months later said "oh, if you want a back seat you have to pay for it!", since the backseat was included in the original product.

Oh, and charging for OS 2.0 would just be plain [b]S T U P I D. [/b]

No OS2 will be free, same as every other OS update, it was just worded in a way that could let trolls talk crap.

2012 = The year of RIM.!!

Ps: Everywhere I go, people are talking about the playbook. In my own office, there is over a dozen new playbook users alone. RIM's strategy worked, everybody is getting onboard. Go RIM!!!

Talking about the PlayBook isn't enough. RIM isn't making money off the PlayBook sales, by selling the PlayBook they're actually losing money. And it's money that atm can't be made up elsewhere really.

Actually it's money that can be made up elsewhere. If people like the overall feel of the playbook and are satisfied with the direction that RIM is heading, it plants the seed that it may be worth it to drop their android or iphone device for a new BB whenever the newest software is created.

Walmart did something similar to this when they 1st started cutting back on all their prices and everyone thought they were crazy 10+ years ago. Now look at them

I think the biggest benefit RIM has with the playbook is the bridge function. It was something I think was pretty genious to include because it does make the entire experience better. Being able to go online anywhere for no additional charge if you get a blackberry.

Some person with an android or iPhone who picks up a playbook because it is such a low price at $199 now has a reason to maybe make their next phone a Blackberry. Right now really what is the reason for someone to go from android or iPhone to blackberry. Some people want to (me included) but most people are happy with what they have until something else grabs their attention.

That just means you don't know a lot of people. RIM hasn't even sold a "million" of these devices, WORLDWIDE!!! PATHETIC!! FAIL!!

Another fucking guidance down!!!! Jesus do they need to take a couse in managing expectations 101!!!

Now that my day has started off crappy I get to look forward to hearing JimB throw out all those useless buzzwords during the next qtr conference call.

So it's going to be six months since the board required the CO-COE's to justify their positions else be replaced. Here we are with another poor quarter in the books. Will they be shown the door? Either way, it's time for a new leadership strategy.

Well hopefully they gain the foothold in the tablet market that they want. Also I wouldn't mind they stick with the promotional price of the playbook, as I am still yet without one. *keep fingers crossed*.

RIM only has another couple of quarters at most, of overpromise/underdeliver, before the dastardly duo will be ousted by investors. It all looks unremittingly grim.

According to Urban Dictionary you have the most recent incarnation of Laugh Out Loud. Congratulations!!

i enjoy the line, "Company now believes that an increase in promotional activity is required to drive sell-through to end customers.". I find this important to note out simply because it feels like the PlayBook was not marketed in the US hard enough. So maybe there is some potential left in RIM, although i must say it should not have taken a quarter or to to realize the needed amount of marketing.

They are not talking about marketing. They are talking about promotional pricing.

And if RIM has all this inventory, why is Best Buy sold out?

Hope this strategy works. Wish I had waited until now to buy my Playbook 64GB. Oh well. I wonder if OS2 will be even later now because of this announcement.

They just like to admit that they're always a step behind. We already knew all this. Of course it was more expensive than people were willing to pay for what they got in return, of course you didn't market or promote it well enough.

I just hope that they appreciate their early adopters.

Disappointing news for the company but at least their cash line increased by $80 million. RIM is still a profitable company and even if there are less of us using it, it is still the one for me.

I still love my Bold 9930 more than any other device out there.

No surprise here, that's why the stock is where it is. Playbook is selling but at $200, there is no money being made.

The tablets needed to get sold one way or another, for a user base to get formed and for developers to get more interested in the platform. OS2 will come, apps will start popping up next year. Hopefully the Porsche $2000 models will keep them in the dough till the they start makin serious profits on playbooks =)

Agree. You gotta get the PB product in the hands of those Devs and consumers even if at a loss (it wasn't selling at +300 bucks so the strategy makes perfect sence).

Its a short term pain for long time gain


"The Company is still in the process of finalizing its fourth quarter outlook, and based on preliminary estimates, RIM expects unit shipments in the fourth quarter to be below third quarter levels. "

Are they talking just PlayBook or all devices? For them to sell fewer phones in the 4th Quarter than they did in the previous quarter after the release of all the new OS7 devices,....????

Earnings were $1.20 a share. The write down is non-cash!!!!

So they produce a playbook at $200 and register an account receivable of $500 (minus retail)
When they sell the playbook at $200, they must record a charge of $300. It's not an actual cash loss.

Stupid US media is reporting that Rim lost $486 million! The bright side is that they are getting playbooks into people's hands at no cost to them.. Good strategy to lift BBX (more apps, more pleased customers considering the bbx). Would be nice if they sold the playbook at $500 but considering the competition, they are doing well with the cards they are dealt.

Many iPad fanboys salivated over that bit of PR and are celebrating like they won a war.

Dizzying logic there. Despite that I own both a PB and an iPad, I still get the "pie in the face" treatment due to actually liking another tablet that didn't come from Apple.

Chances are if I got some Android variant, they would cling onto some other bad PR for Google and said tablet maker.

Fanboys and haters everywhere...

The more I think about it, the more I realize that RIM should have stayed out of the tablet game and focused on what they are good at - phones and enterprise.

Well, I am buying some more shares of RIMM. I am risking that RIMM is going to turn it around for 2012. At the current stock prices, now is the time to purchase. PlayBooks are getting into consumer hands, OS7 devices are selling well, BBX and 2.0 are coming! RIMM is transitioning to begin to reclaim some lost territory. At these prices for RIMM stock, all it takes is a little improvement to have a big impact on profit for the investor.

The Sprint store nearby me isn't doing RIM any favors. 9850 not being updated. Playbook not being updated. And one time, someone came in to ask specifically about getting another Blackberry and the salesperson said you can't tweet or use Facebook with the Blackberry's and recommended Android (this was prior to the iPhone, which no doubt they must be pushing hard now that they have a quota to sell).

I like how the author fails to mention that RIM missed their guidance & just reworded it in a way to avoid that fact! RIM-lovers, keep-up the "delusional" behaviour, you're clearly doing GREAT!!!

Phone sales in line with estimates but the play book wasnt. Like this is a shock. Is anyone really surprised? Anyone other then Apple selling a pad device has been a loser! Any tablet/pad manufacturer is going to get killed making them, they have no choice, Apple has a stranglehold on the consumer in a way that every other company wishes.

Good to see there handset sales are in line, but a slow in sales for there Q4 isnt good. Hopefully they underestimate and the new releases pick up the slack.

I was recommending Playbooks to my boss at work when he found out that they had no apps. Other employees were up in arms about the idea. Now everyone at the office has an iPad except me. RIM goofed, pure and simple. They probably wouldn't have sold as much as iPads, but they could have had a heck of a lot more success.

Does anyone really care about this? It's all going to come down to the QNX phone and that's it. This information, playbook selling or not is chump change compared to phones.

I'm not even sure the stock price should go down. By going down we assume that investors really thought the playbooks would sell at the prices they were at?? Were they dreaming??

To me the write down represents an investment in the future of the QNX OS. They need the tablets in more hands to attract developers to the eco-system.

But again it really comes down to theQNX phones and that's it.

rim its time to release APPS dont sell devices, SECURITY does not sell devices. BRAND does, common lets admit this mistake. You're week's gains have all been wiped out in a single day. stop this madness and stick to what you're good at . Build your brand!

Actually iP*d is the only maker who is making money from this tablet business...

This proves that the PlayBook was a monumental mistake, the co-CEO's put the *entire* company's resources into developing a tablet that was late, incomplete, with little or no App developer support.

And the consequences and opportunity costs of this huge blunder?

a) The *entire* portfolio of BlackBerry Smartphones were delayed: Bold 9900, Torch 9810, and Torch 9860. Sales are down. (Heck, some countries in Asia cannot buy the Torch 9810 yet, while the Torch 9860 had just been launched last week !!)

b) The QNX platform/brand had been tarnished (dare I suggest QNX name damaged), with a number of developers shunning support for PlayBook/QNX platform outright. (Now you know why BlackBerry called it the BBX and not the QNX.)

c) RIM risks being in no-mans-land, risking alienating existing Java developers for BlackBerry OS7 feel like second class citizens, with RIM giving no conversion tools to port their applications to the new BBX platform. Pity they have to write the application from scratch.

So with little support for future QNX/BBX, and existing Java developers don't see the future of BlackBerry OS7, RIM is actually *losing* what traction left in its App store.

d) RIM/BlackBerry had also entirely missed the boat in the App-commerce that had now spring up, here in Asia many companies are expanding their business by launching Apps for both Android and iPhone/iPad--and none for BlackBerry at all. This was because RIM/BlackBerry had entirely missed the boat in being late to market with the OS7 series of smartphones, costing BlackBerry dearly in market/App momentum.

e) In retrospect, RIM should have launched the OS7 series of smartphones (its bread and butter portfolio and money maker) in early 2011, and then launch its PlayBook tablet afterwards. ie: co-CEO's got the launch order backwards, and in the process damaging *both* the QNX name and also damaging the OS7 market position.
(I for one strongly felt RIM should have launched its OS7 smartphones first, and this was back in Sept/Oct 2010 when the PlayBook was announced. Common sense.)

~So what is the point? The entire company's direction was serious wrong, and who is ultimately responsible for this? The co-CEO's, and the entire senior management of RIM. CEO's have been replaced for lesser sins than the blunders mentioned above...

a) Hopefully RIM had two teams in place, one to work on OS7 devices and one to work on the next generation BBX/QNX devices. Perhaps the early release of the Playbook and its subsequent criticisms made RIM rethink releasing OS7 devices too early, since the end product is pretty solid. I'm new to Blackberry's and selected the 9850 because it was /more/ responsive than Android phones of the same price range. The speed of interactivity is what I expect it should be. Even iPhones, up til the 3GS, weren't fast enough for me.

b) Developers will develop if there's money to be made. They don't shun based on high cost/difficulty of development. Look at the complaints for PS3 development.

c) RIM made great strides in giving developers new tools. If their original problem was that they were sticking too close to the past and not innovating, then they /need/ to do a big paradigm shift and that means leaving old development behind. Microsoft did it (DOS->Windows). Apple did it (MacOS->OS X). They had to do it.

d) So your scenario was for RIM to release OS7 devices sooner so that they could get /more/ Java apps? How does that help RIM move forward with their switch to BBX/QNX? Their best bet is what they're doing now: get BBX/QNX tools out now and get developers to write /native/ apps, not just Java translations or ports, /before/ the devices hit the market.

e) Launch order would have been dependent on availability. If the OS7 devices weren't ready for market before the Playbook, then your ordering makes no sense. The Playbook release taught RIM that they need to have certain things in place or there's no point to releasing to market. Haven't the complaints been about half-baked products?

I would contend that the direction they're moving in is correct: move to a more modern OS (BBX/QNX), release developer tools early and continue to work on new devices.

Why would that be? They're selling well at $199.

Even HP raised the price of the Touchpad's to $219/16 GB and $249/32 GB when the second batch became available.

The math doesn't add up.

485,000,000/150,000 is 3233.33 lost per tablet sold into channels.

Someone on another site told me they actually moved 800,000 units, but even that shows a loss of $606.25/tablet.

The $485M relates to stuff that RIM still holds in its warehouses, i.e. inventory. Whatever's been sold has moved into the income statement line item Cost of Goods Sold.

Example for 1 Playbook selling at original MSRP (made-up numbers):

Revenue: $400 (let's call it $499 less the margin they gave the retailer, at full price)
Cost: $300
Gross Profit: $100

Now, with the deep discount:

Revenue: $200 (call it $260 [current Amazon price] less margin)
Cost: $300 (unchanged, prior to write-down)
Gross profit: -$100

Instead of losing on every future sale now that it's been determined that $250-300 will be the near-term price point for the rest of the inventory, RIM's going to write down what's left in the warehouses so that they take the hit up front, and then make a few bucks/break even the rest of the way. In my example, they'd need the inventory cost to come down to $200 to break even. Let's say they conservatively mark down each unit's inventory cost by $150 to bring it down from $300 to $150.

Per unit = $150. Assume 3M units in warehouses, the write-down needed for all of them would be about $150 x 3 = $450M. We're not gonna be able to verify the exact numbers since RIM doesn't break out inventory costs by model (phone, tablet, etc), but the rough math I sketched out seems to make sense to the first order.

RIM is going down. They have outdated handsets, a failed tablet, and inconsistent plans for the future. 2012 is the year RIM gets out of the hardware business, especially when the hardware business means losing half a billion dollars.

When I was in XXXXXXX a number of years back, I was pretty shocked at seeing two large groups of men and women get into a raucous brawl because one side thought Ford was better than Holden, and the other side did not agree at all. It was very violent, bloody, and I was scared. People were taken to hospital. All that over two different brands of automobile!

Is this the direction we're heading with regard to mobile phones? Some of the posters on this site really go out of their way to put RIM and its products down. Just because you like your iphone/android, doesn't mean blackberry sucks. Just because I like my blackberry, doesn't mean I think the iphone sucks.

This is exactly how I look and feel about people who must somehow show their devotion to whatever electronic gizmo they invested in and must somehow automatically hate all the other competition despite the fact that their loyalty is really misguided.

Going as far as trolling forums or showing actual bitter hate for some stranger they never met using a different phone or driving a different car (bloody battles between Ford and Chevy folks)

I still use my old Bold 9700. I get a lot of questions of "why are you still using that? You should get an iPhone" despite the fact that I am honestly happy with what I have.

The PlayBook is icing on the cake between my devout iPad loving friends showing me how great their 720p portrait video looks and then connecting my much smaller PB and showing how much better my 1080p video looks (and sounds) better thanks to the stereo microphones on the PB.

Don't get me wrong, I am no fanboy of brands but I like my Mac, I carry an old phone, and just happy with what I have without the need to shove it in others faces.

I will admit that I do love the PlayBook hardware, but the software really needs to show some major strides in the right direction. Step one, get auto punctuation and live spell checking on the keyboard!