RIM Writedown Risked With $1 Billion Inventory: Corporate Canada
Research In Motion Ltd. (RIMM)'s stockpiles of BlackBerry smartphones and PlayBook tablets have swollen by two-thirds in the past year because of slumping sales, raising the chances of the company's third writedown since December.
Context & Ripple Effects
RIM had already booked a $485 million tablet-related charge in December, and its shares had fallen below book value before that. The expanding BlackBerry and PlayBook stockpile makes the earlier inventory problem a continuing balance-sheet issue rather than a one-off tablet correction.
On the same date, RIM said it expected an operating loss while bankers helped explore strategic options. Inventory that may need to be marked down adds urgency because it reduces the value and flexibility available in any such process.
First-order effects
- RIM faces the prospect of a third inventory writedown since December, reducing the recorded value of BlackBerry phones and PlayBook tablets that have not sold as planned.
- RIM management must either accelerate sales of the swollen inventory or recognize that part of it cannot be recovered at its existing carrying value.
Second-order effects
- Potential advisers, partners, and buyers assessing RIM's strategic options must discount for inventory whose realizable value is uncertain, complicating comparisons with its stated book value.
- BlackBerry and PlayBook channel partners face greater pressure to move existing stock, making price reductions or promotional support more likely than a focus on new-device sell-in.
Third-order effects
- Repeated charges would signal a deeper demand-planning failure: RIM's hardware strategy is being constrained by legacy inventory before it can fund and launch its next product cycle.
- The episode fits a consolidation pressure in mobile hardware, where declining sell-through turns inventory from a sales asset into a constraint on strategic choices.
The trend: RIM illustrates how slowing handset demand can convert inventory buildup into a balance-sheet problem that narrows a device maker's strategic options.