As RIM Inventories Build Up, More Write-Downs Could Come


Photo: leondel/Flickr

Research In Motion Limited is delaying the launch of its new Blackberry 10, suffering worse than expected sales, and letting go of 5,000 people. While the stock plunged more than 18% on Friday after the news, maybe investors should not have been so surprised. The troubled company has been and remains at risk of announcing unpleasant earnings developments.As the Canadian mobile communications firm takes a beating from rivals such as Apple’s smartphone, Research in Motion said Thursday that its sales plunged 43% to $2.8 billion in the three months ended June compared to the same period last year. The company’s managers are cutting staff in an effort to save more than $1 billion annually.

The stock was worth around $7.47 per share near closing time Friday after many Wall Street analysts lowered their expectations about the company’s future stock price, according to news reports. For example, Reuters said analysts at Citi Investment Research expect the company to make more downward adjustments to its valuation of assets. “We question if RIMM’s new BB10 products will even matter as it may be too little too late,” Citi reportedly said.

Research in Motion’s managers have been betting the farm on the BlackBerry 10, an operating system that enables developers to create apps. They had said on May 1 that the new devices would launch in the latter part of 2012, but now on Thursday the new CEO Thorsten Heins said it would be in the first three months of 2013 instead. “I will not deliver a product to the market that is not ready to meet the needs of our customers or provide anything less than an outstanding user experience with the quality I expect a BlackBerry product to have,” Heins said in a conference call with analysts. “There will be no compromise on this issue.”

Hopefully for Heins and his team, this admirable dedication to quality will pay off in the long run. Their fates depend on the BlackBerry 10. As GMI had already warned in mid-June, Research in Motion’s inventory rose to $1.03 billion in the previous quarter compared to only $618 million during the same period last year. In the June quarter inventories remained a high $1.02 billion, or almost 8% of total assets. This is what Heins and his team think their supplies will be worth once sold. If the BlackBerry 10 ends up less successful than expected, Research in Motion’s managers will have to revise their asset valuations downward in the coming months โ€” and that will mean more pain ahead for them and their investors.

Research in Motion’s financial statements have reflected an AGR score no higher than 4 since September 2011. This doesn’t mean the company has done anything wrong โ€“ its overall corporate governance rating is actually a B โ€“ but it does suggest the risk of unpleasant earnings surprises.

Meanwhile Research in Motion’s shares lost more than 74% of their value in the past year. They’ve certainly cheapened, especially this Friday.

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