There is nothing the tech industry fears more than inventory piling up in warehouses. Many learned this lesson after the Dot Com crash of 2001 left big vendors like Cisco, HP and Sun with billions in unsold silicon that they had to write off as a loss.
Unsold inventory is a red flag of a troubled company. It’s costs of manufacturing that will not be recouped as sales, because given how quickly technology turns over, it will be useless within a few months and have to be written off.
Bloomberg notes that inventory of BlackBerry smartphones and PlayBook tablets has grown by two-thirds in the past year. Inventory has grown 18% last quarter alone, a faster rate than at any other company in the industry, while Apple’s inventory declined 11% in the same period.
The RIM balance sheet for the quarter ended in March told the tale: inventories nearly doubled year-over-year, from $618 million in 2011 to $1.0 billion in 2012. Accounts receivable, which is sales, dropped $900 million in one year and goodwill, a measure of an asset’s increasing value, dropped $200 million.
The result is a stock continuing its decline. It was $39 one year ago. Now it’s $9.60. The only thing RIM is accumulating besides inventory is predictions of doom. A spokesperson for the company said it will provide a business update when it reports its quarterly results on June 28.
Bad News All Around
Swelling inventory can be interpreted two ways: one, people just don’t want it at all; or two, people are holding off purchases for a new product. That’s one reason Apple’s iPhone sales and inventory are tapering off. The countdown clock is ticking on the iPhone 5. RIM also has new phones coming this fall with a significant upgrade to its aging operating system, called BlackBerry OS 10, or just BB10.
The company could be facing the infamous Osborne Effect, where customers stop buying what’s on the market in anticipation of what is to come. It was taken to the ultimate with Osborne Computer in 1981, when the company CEO promised a hot new computer, people stopped buying what was on the market, and then the cash-starved firm couldn’t deliver. That painful lesson is one studied by every CEO in tech.
But in this case, it’s not the Osborne Effect, people just aren’t buying RIM products, said Charles Payne, president of Wall Street Strategies, a financial research firm. “I don’t think anyone is saying ‘I’m not buying a BlackBerry because BlackBerry 10 is coming.’ If it’s a home run, it’s a home run. But I don’t think anyone is sitting around not buying a BlackBerry because the new one is coming out. Everyone’s just lost faith,” he said.
A lot of people thought Apple, a new entry into the smartphone field, was in trouble when RIM made a move for consumers with BlackBerry OS 6 a few years back, but RIM just left innovation behind and tried to leverage its reputation, said Payne, and now Apple is flatting RIM.
RIM has pockets of strength around the world. For example, it’s very popular in Indonesia. But Payne figures those problems will catch up with them. “You just have to wonder when U.S.-centric problems catch up with them in the rest of the world. What happens when Indonesians see the iPhone? Whatever’s hurting them in America. I don’t think they can run away from for a long period of time,” he said.
RIM Up on the Block?
It now becomes a waiting game to see which firm snaps up RIM, and for what reason. Google bought Motorola’s mobile phone business not to get into the handset business but for the patents it held and for protection. RIM has plenty of its own patents and some assets, like BlackBerry Enterprise Server, and both iPhone and Android could use server-side management software.
“I can’t imagine anyone paying them a premium for those assets,” said Payne. “I wonder where Samsung is in all of this because I see them as the most legitimate threat to Apple right now.”