BB - BlackBerry

[Guest Hester]

The extreme devotion of some to a stock they own never ceases to amaze me

[Uccmal]

Another take on supposed security issue:

 

http://business.financialpost.com/2011/11/30/analysis-rims-playbook-jailbreak-no-emergency/

 

[CONeal]

Well RIMM no longer expects to meet their guidence for the year of 5.25 to 6.00 .  Then again what is new this year, you could see the writing on the wall during the last qtr cc.   

 

http://finance.yahoo.com/news/rim-book-playbook-charge-quarter-121855367.html

[Liberty]

Down more than 8% today, guess the secondary market didn't like the news.

 

They'll soon have a smaller market cap than Fairfax.

[Cardboard]

Shareholders lawsuits must be coming here. It usually happens when the guidance is botched like this.

 

Cardboard

[Liberty]

http://online.wsj.com/article/SB10001424052970204012004577073932113176106.html

 

TORONTO—Research In Motion Ltd. wrote off nearly a half-billion dollars in unsold or discounted PlayBook tablets and warned it expects to sell fewer BlackBerrys this holiday, further clouding the company's future as it struggles against rivals Apple Inc. and Google Inc. in the smartphone market.

 

RIM disclosed Friday it would take a $485 million charge in its fiscal third quarter, which ended in late November, after marking down the value of its large inventory of PlayBooks. It also revised downward profit and revenue estimates for the full year.

 

Shares fell sharply, ending the day in New York down $1.81, or 9.7%, at $16.77. RIM shares have lost more than 70% of their value this year. RIM's market capitalization now stands at just $8.86 billion, down from its peak of more than $80 billion three years ago and more than $30 billion at the start of the year.

 

Funny, I'm currently reading a book on accounting shenanigans, and this smells fishy. By taking a big charge below the line and maybe writing down too much in Q3, they could improve margins and operating income in Q4. An optical illusion that wouldn't really help the fundamentals of the business, but we'll see if it works with wall street and bay street.

[beerbaron]

Funny, I'm currently reading a book on accounting shenanigans, and this smells fishy. By taking a big charge below the line and maybe writing down too much in Q3, they could improve margins and operating income in Q4. An optical illusion that wouldn't really help the fundamentals of the business, but we'll see if it works with wall street and bay street.

 

Nobody looks at net income anymore for valuing RIM. They look at unit sales.

 

Their writedown is probably directly related to the PB being sold at 200$, they can't carry the inventory at cost anymore. I would not put it in the accounting trick section.

 

BeerBaron

[Myth465]

Ya this is standard accounting fair. They have to write the inventory down to cost or market. They are selling them below costs hence the loss.

[Liberty]

I totally agree there's a justified GAAP writedown there, but I'd be curious to look closer at it to see if they wrote it down more than they had to - management has a lot of discretion there.

 

But I'm not saying I know that something wrong is going on -- just pointing out that there's the potential for it. We'd have to dig much deeper to be sure..

[Smazz]

Funny, I'm currently reading a book on accounting shenanigans, and this smells fishy. By taking a big charge below the line and maybe writing down too much in Q3, they could improve margins and operating income in Q4. An optical illusion that wouldn't really help the fundamentals of the business, but we'll see if it works with wall street and bay street.

 

Nobody looks at net income anymore for valuing RIM. They look at unit sales.

 

Their writedown is probably directly related to the PB being sold at 200$, they can't carry the inventory at cost anymore. I would not put it in the accounting trick section.

 

BeerBaron

You are most likely correct as most of the scuttlebut is directed towards the issue of the write down and what %is for finished inventory and what for WIP. They have stated its a combination of both but many are interested as to what is the breakdown is - to which they should have to come forward with on the 15th.

[AZ_Value]

I totally agree there's a GAAP writedown there, but I'd be curious to look closer at it to see if they wrote it down more than they had to - management has a lot of discretion there.

 

But I'm not saying I know that something wrong is going on -- just pointing out that there's the potential for it. We'd have to dig much deeper to be sure..

 

I'd actually be raising my eyebrow if they weren't taking any write downs given what's happening with the PB.

 

In my opinion they're just discontinuing and liquidating something they shouldn't even have started, at least until they get their phones issues straight.

Personally, I'd be more interested in seeing actual numbers for those PB left in the channel. That would tell us how hard it is proving to get rid of those tablets even at a bargain $200 price, and also exactly how confident they were, or cocky some might say, in manufacturing so much of a product that no one enventually wanted.

[Liberty]

I totally agree there's a GAAP writedown there, but I'd be curious to look closer at it to see if they wrote it down more than they had to - management has a lot of discretion there.

 

But I'm not saying I know that something wrong is going on -- just pointing out that there's the potential for it. We'd have to dig much deeper to be sure..

 

I'd actually be raising my eyebrow if they weren't taking any write downs given what's happening with the PB.

 

In my opinion they're just discontinuing and liquidating something they shouldn't even have started, at least until they get their phones issues straight.

Personally, I'd be more interested in seeing actual numbers for those PB left in the channel. That would tell us how hard it is proving to get rid of those tablets even at a bargain $200 price, and also exactly how confident they were, or cocky some might say, in manufacturing so much of a product that no one enventually wanted.

 

That's what I'm saying. There's a proper writedown, but it gives the opportunity of writing down more than what is necessary to see a bounce in the next quarter.

 

Say you estimate that something is now worth X, but instead you write it down to 1/2 of X, during the next quarter if you see it for X you have this 'bonus' 1/2 X coming into operating profits.

 

I'm not saying that's what they're doing, just that it's something to watch out for, because the temptation to have a better Q4 will be high since consumer electronics makers are always watched more closely during the holiday shopping season.

[Liberty]

Here's a theory on the writedown:

 

http://www.mondaynote.com/2011/12/05/behind-rim%E2%80%99s-485m-write-off/

 

But a second look at the numbers and at RIM’s communiqué itself raises more questions, ones I’m surprised analysts didn’t ask. Was it because RIM’s disclosure took place on a Friday, an oft-used maneuver to limit the spread of bad news?

 

We’ll focus on the $485M number and a look at RIM’s two previous quarters. As the company’s fiscal year starts March 1st, we have Q1 (ending in May 2011) numbers here and Q2 (ending in August 2011) results here.

For Q1 the company claims it sold 500,000 PlayBooks; for Q2, RIM says it sold 200,000 of the same tablets. Sold, in accounting parlance, is a precise term: this isn’t just a shipment, it’s a financial transaction whereby the buyer now owes RIM money, and RIM counts this as revenue and, after costs, profit.

 

We now turn to the cost of the PlayBook tablet. We know it’s made by Quanta, a reputable Taiwanese ODM, with approximately the same contents as Amazon’s Kindle Fire, also made by Quanta and, reportedly costing around $200 to make. Other reports peg the Playbook’s manufacturing cost around that same $200 number

Accounting rules say inventories are to be valued at the “lowest of cost or market”. If my widget costs $100 to make and sells for more, the accountants will value the inventory at $100 per unit. If, sadly, I can only sell it for $50, the inventory valuation must be $50. And, if an optimistic valuation of $100 was once used, it must now be “written down” to $50, causing a loss, even in the absence of commercial transaction. This is an inventory write-off or write-down. (This type of cashless loss mystifies normal humans who have trouble with the notion you can be profitable and go bankrupt. It’s ‘‘easy”: You make a profit the moment you sell a product for more than it costs. And you go bankrupt if your customers don’t pay but your suppliers insist on being paid. And there’s Uncle Sam to whom you owe tax on your “profit’’.)

 

Turning back to RIM’s $485M write-off, how many PlayBook tablets does it represent? Using the $200 cost figure as an assumption, we get 2.4 million tablets all written down to zero! This doesn’t quite make sense.

First, why write the inventory down to zero? HP’s TouchPad fire sale demonstrated the existence of demand at the $99 price level. Admittedly, Amazon’s $199 price for its Kindle Fire makes it difficult for RIM to get to that price at this stage of the PlayBook life and tattered reputation.

Second, even if we accept a write-down to zero, 2.4 million tablets is a strange number. How could RIM have accumulated such large inventory? And if the inventory hit is less than $200 per device, this increases the number of tablets in RIM’s cellar: $100 write-off per tablet yields 4.8 million devices. Impossible.

 

A possible explanation lies in the way ‘‘sales’’ were reported in previous quarters. Perhaps these transactions weren’t totally final, meaning they shouldn’t have been recorded as revenue because the buyer had the right to return Playbooks to RIM. Faulty reporting of revenue could spell trouble with shareholders, the SEC and hungry attorneys.

Still, RIM only reported a total of 700,000 tablets “sold” for the Q1 and Q2, they can’t have all been returned and massive returns would have been disclosed previously, one hopes.

RIM’s Q3 numbers will be released in a week, on December 12th, giving the company an opportunity to explain this strange $485M number. This should be interesting.

 

There’ll be more to watch, such as the year-to-year change in smartphone sales, the state of relations with applications developers and, crucially, how much cash is left in RIM’s coffers. For the last reported quarter, it was $1.15B, down from $2.1B the previous period. This isn’t much to wage today’s smartphone wars.

[S2S]

The extreme devotion of some to a stock they own never ceases to amaze me

 

Yes.

[rmitz]

Humor for the day:

 

http://www.cbc.ca/news/canada/story/2011/12/09/rim-execs-flight.html

 

New details are emerging about the rowdy behaviour of two Research In Motion executives who were fired for disrupting an intercontinental flight — including that they managed to chew their way out of restraints after being handcuffed by crew members.

[beerbaron]

I've officially renamed RIM the portfolio killer of 2011. What an Annus Horribilis for this company! It's painfull to watch them miss everything they promess. At least managements 1$ payroll action shows some signs of honesty from the CEOs.

 

 

[DCG]

They'll probably use their $1 salaries to purchase apps for their iPhones.

[AZ_Value]

Things will probably get tougher going forward. The latest QNX delay should put them right in the middle of an Iphone 5 launch. They just need to deliver on a promise, any promise, to convince people that they know what's going on in their company

[DCG]

I hate the fact that Fairfax has continued to dump huge amounts of money into this company.

[Liberty]

At least managements 1$ payroll action shows some signs of honesty from the CEOs.

 

It's not a bad move per se, but it doesn't automatically have to come from an honest motivation. They own a lot of stock, and they could have figured that maybe such a move would have a positive impact on share price and more than compensate for whatever they're not getting in direct compensation.

[racemize]

I hate the fact that Fairfax has continued to dump huge amounts of money into this company.

 

That's my feeling as well, hopefully it works out for them (and us).

[Liberty]

I hate the fact that Fairfax has continued to dump huge amounts of money into this company.

 

That's my feeling as well, hopefully it works out for them (and us).

 

RIM now has a smaller market cap than FFH.

[enoch01]

Any thoughts on liquidation value?  What's a floor here?

[enoch01]

Any thoughts on liquidation value?  What's a floor here?

 

don't think investors value it based on liquidation. It's controlled by two CEOs who will fight to the end. They have already made their money and even if it goes to zero their lifestyle's won't materially change. Usually these things drag on and on as egos are wrapped up in the companies and they fight to the bitter end trying to get a turnaround. History suggests that when a tech company falls behind faster moving competition there is not much of a business left. I liken this to Sun Microsystems, which was eventually bought out by Oracle for pennies on the dollar from where it once traded, after a long stubborn fight to turn it around, but in reality just delayed the inevetibale and destroyed more value .

 

Fair points, thanks.

[AZ_Value]

I hate the fact that Fairfax has continued to dump huge amounts of money into this company.

 

+1