[m1a1mg]

The news just keeps getting worse.

BlackBerry Ltd.�s swelling inventory of unsold smartphones is approaching the $1 billion mark, raising the chance the company will make its fourth writedown in two years when it posts earnings next week.

Blackberry Ltd is preparing a round of deep staff cuts by the end of 2013, sources tell the Wall Street Journal. Read more
BlackBerry reported a 47% gain in the value of its inventory in the June quarter, bringing the figure to $887 million � the biggest increase among more than 75 of its peers, according to data compiled by Bloomberg. The amount may rise again in the most recent period as sales sputter, said Brian Huen, who tracks the company as a managing partner at Red Sky Capital Management. BlackBerry announced last month that it was open to takeover bids, hurting already-sluggish sales because customers are more skittish about the company�s future, he said.

BlackBerry Ltd poised for writedown as inventory of unsold smartphones swells to almost $1-billion | Financial Post

[Jahcure]

We will Find out if it's true come next week, as for now the article is just guessing.

Posted via CB10

[lnichols]

Ouch. Shocking that something that you fail to or put a minimal marketing effort into the advertisement of, especially when it is a major product shift, has sales that didn't meet production estimations. I think another write down will have investors with pitchforks demanding that heads role again. Are they pumping oxygen into the executive offices in Waterloo that makes them think every think is going great until they are at the edge of a cliff and panic?

Posted via CB10

[phinsphan]

I'm not about to deny every negative article. And Hugo Miller has a long track record.

But they make the headline seem like they will write down a $1 billion worth of inventory. Their inventory seems in line with rolling out 2 new products in the Q5 and Z30. Could this be why it increased?

Worst of all he sites one small time money manager saying they "could" write down. The rest of the piece is just rehashing old news.

Sounds like a short story.

Posted via CB10

[Jtaylor1986]

I'm a chartered accountant and this article is pretty bad. Their inventory was up so much last quarter because they were rolling out a global launch of Blackberry 10 which required an inventory buildup. Compounding this was the fact that they had been selling more phones than they were producing for something like the last 3 to 4 quarters so they had a very low level of inventory on hand and in the channels in the previous quarter and a buildup was normal under almost any scenario short of BB10 has passed Apple in market share globally.

Don't read too much into this one based on that article folks as inventory would have gone up in virtually any situation. Furthermore a writedown only occurs when the historical cost of the producing the inventory is greater than the amount they believe they can sell it for. Given how complicated and subjective inventory costing is and that inventory is made up of raw materials, partially completed goods and finished goods for every product category on hand and an outside analyst without any insider information is just making a shot in the dark.

[the_sleuth]

Problem is too many people in these forums have become attached emotionally to this company.

Several of us have said this inventory writedown is coming along with cash burn. From the article, I agree with Gillis that this inventory writedown will come later in the year. Doing it now would not look good to potential buyers.

[Jtaylor1986]

Problem is too many people in these forums have become attached emotionally to this company.

Several of us have said this inventory writedown is coming along with cash burn. From the article, I agree with Gillis that this inventory writedown will come later in the year. Doing it now would not look good to potential buyers.

Financial reporting doesn't work like that. That would be classified as fraud, manipulating your inventory valuation to affect a sale price would potentially would put you in jail and negate any deal that was underway. Inventory would need to be impaired in the financial reporting period which it was believed that the net realizable value is less than the cost.

[Dunt Dunt Dunt]

Problem is too many people in these forums have become attached emotionally to this company.

Several of us have said this inventory writedown is coming along with cash burn. From the article, I agree with Gillis that this inventory writedown will come later in the year. Doing it now would not look good to potential buyers.

Don't think you could hide this information from a buyer looking at the books. And said buyer most likely would want this markdown taken before they buy the company, plus it would also help to get the stock price more in line with the real value of the company and thus get it closer to the real buying price.

Maybe things will turn out much better than they seem.
But when ALL signs show that a bad storm is coming, it's best to prepare for the worst just in case.

[the_sleuth]

Jtaylor1986, your argument confirms inventory evaluation is subjective and difficult to measure. Accountants are not infallible.

BB management can push the inventory writedown to another quarter if they so desire. As we have learned from Worldcom, Enron, Nortel, Sino-Forest, and Laidlaw Waste Management, hired accounting firms will sign off on pretty much anything the firm's management pays for in their services..

I agree with Scalemaster34, a storm is coming. It could be September 27 or later this year. We shall see...

[fromlid]

I guess this is why book value doesn't mean very much when a writedown can make a billion dollars vanish into thin air.

[Jtaylor1986]

Jtaylor1986, your argument confirms inventory evaluation is subjective and difficult to measure. Accountants are not infallible.

BB management can push the inventory writedown to another quarter if they so desire. As we have learned from Worldcom, Enron, Nortel, Sino-Forest, and Laidlaw Waste Management, hired accounting firms will sign off on pretty much anything the firm's management pays for in their services..

I agree with Scalemaster34, a storm is coming. It could be September 27 or later this year. We shall see...

I Disagree with you and being in the industry I think I have more knowledge of how these things work. Their auditor will be all over this issue like a dirty shirt to especially as they are not going to risk their own livelihoods for a company they likely wouldn't even be retaining as a client in the case of a sale.

[Carterbits]

I Disagree with you and being in the industry I think I have more knowledge of how these things work. Their auditor will be all over this issue like a dirty shirt to especially as they are not going to risk their own livelihoods for a company they likely wouldn't even be retaining as a client in the case of a sale.

While everything you're saying makes a lot of sense, I would temper some of the assertions about auditing just a tad with a bit of recent history:

HP Alleges Fraud In Autonomy Deal; Takes $8.8B Charge; Shrs At 10-Year Low (Updated) - Forbes

"Specifically, HP today disclosed $8.8 billion in non-cash charges �linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy � that occurred prior to HP�s acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term.� In effect, the company is writing down close to 90% of the value of the transaction."

and more pointedly:

Audit firms sued in HP's Autonomy acquisition | Reuters

"HP Chief Executive Meg Whitman has repeatedly said that the company relied on audits of Autonomy, done by the UK arm of Deloitte Touche Tohmatsu, when it paid $11.1 billion for Autonomy last year.

HP last week blamed the majority of its $8.8 billion write-down on improper accounting at Autonomy.

Whitman also said HP relied on KPMG's audits of Deloitte's work."

So in effect, HP hired Deloitte to audit Autonomy, then KPMG to audit Deloitte, and HP reviewed both KPMG and Deloitte and all three missed the now-claimed "obvious" fraud.

Now, I'm not disagreeing that what you're saying "should" be reality. Just saying that cooking the books doesn't seem to be as hard in practice as it sounds in theory. Also, your first response to this thread was educational for me and I appreciated reading it. Don't take my post the wrong way, it is only offered up as a real-world contrast. The world could probably use a lot more accountants like yourself. :-)

[the_sleuth]

Jtaylor1986, no disrespect to your profession. But if company management wants to embellish the numbers and mislead the auditors, then it can be done. Corporate history is littered with examples over the last few decades.

[Tuco Ramirez]

If this write down is indeed true, there is no way in heck this company can survive even as a niche player in the mobile markets.

[Rudee66]

And a year from now, if Blackberry is still in business, they will have yet another write down on their unsold Z30 inventory. Which by my guess, will be huge.

[Jtaylor1986]

Jtaylor1986, no disrespect to your profession. But if company management wants to embellish the numbers and mislead the auditors, then it can be done. Corporate history is littered with examples over the last few decades.

Yes fraud is very difficult to detect even by an auditor as an audit is not primarily designed to detect fraud. You are essentially alleging though that the management team at BB is going to commit fraud though which I wouldn't throw around lightly without any evidence to back it up.

[lnichols]

And a year from now, if Blackberry is still in business, they will have yet another write down on their unsold Z30 inventory. Which by my guess, will be huge.

Six to eight months, and that is conservative. They are likely going to wrolite down Q5 and Q10 too if this write off is coming next week to get it all done at once.

Posted via CB10

[Jtaylor1986]

While everything you're saying makes a lot of sense, I would temper some of the assertions about auditing just a tad with a bit of recent history:

HP Alleges Fraud In Autonomy Deal; Takes $8.8B Charge; Shrs At 10-Year Low (Updated) - Forbes

"Specifically, HP today disclosed $8.8 billion in non-cash charges “linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy … that occurred prior to HP’s acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term.” In effect, the company is writing down close to 90% of the value of the transaction."

and more pointedly:

Audit firms sued in HP's Autonomy acquisition | Reuters

"HP Chief Executive Meg Whitman has repeatedly said that the company relied on audits of Autonomy, done by the UK arm of Deloitte Touche Tohmatsu, when it paid $11.1 billion for Autonomy last year.

HP last week blamed the majority of its $8.8 billion write-down on improper accounting at Autonomy.

Whitman also said HP relied on KPMG's audits of Deloitte's work."

So in effect, HP hired Deloitte to audit Autonomy, then KPMG to audit Deloitte, and HP reviewed both KPMG and Deloitte and all three missed the now-claimed "obvious" fraud.

Now, I'm not disagreeing that what you're saying "should" be reality. Just saying that cooking the books doesn't seem to be as hard in practice as it sounds in theory. Also, your first response to this thread was educational for me and I appreciated reading it. Don't take my post the wrong way, it is only offered up as a real-world contrast. The world could probably use a lot more accountants like yourself. :-)

If upper management is going to collude together to commit fraud, there is a very low chance of it being caught as these people have the knowledge and ability to cover their tracks very effectively. Given that quarterly financial results are only 'reviewed' not audited makes it even less likely that anything untoward would be caught. Anybody who is going to throwdown a billion dollars on the table to buy BB though you can be sure is going into the companies finances even more in depth than an audit would so I wouldn't get too excited at the ability to manipulate any inventory valuation relating to purchase prices.

[m1a1mg]

Once again, by the tme these numbers came out, the Z10 had been on the market for months and Q10 had to be shpping already. Given that most corporations have gotten pretty good about filling channels in a timely manner. If BBRY had $887 M of inventory, I'd say they missed somewhere. Further, there is no way in heck even the most rabid, anti-BBRY troll could have thought they would only ship 2.7 M phones in the quarter. That was horrendous.

[Thunderbuck]

Problem is too many people in these forums have become attached emotionally to this company.

Several of us have said this inventory writedown is coming along with cash burn. From the article, I agree with Gillis that this inventory writedown will come later in the year. Doing it now would not look good to potential buyers.

If they're holding on to that much inventory, that's actually even more unattractive.

From the awesome PHYSICAL keyboard of my Q10

[xandermac]

Problem is too many people in these forums have become attached emotionally to this company.

Several of us have said this inventory writedown is coming along with cash burn. From the article, I agree with Gillis that this inventory writedown will come later in the year. Doing it now would not look good to potential buyers.

You know that any potential buyer is going to go over the books with a fine tooth comb, right? There's nothing that can be hidden unless the buyers are idiots knowing the state blackberry is in.

Sent from my 4s using TapaTalk

[h20work]

Scary part is, that's roughly 3 million phones (assuming $300 cost on a mix of bb7/bb10's).

Maybe Thor watched Field of Dreams a few too many times. "If you build it, they will come"

[richardat]

You know that any potential buyer is going to go over the books with a fine tooth comb, right? There's nothing that can be hidden unless the buyers are idiots knowing the state blackberry is in.

Sent from my 4s using TapaTalk

True...though one could always hope for a lack of diligence, and with a business on this scale and size, it's not as transparent as it seems.....people have "pulled one over" before...and will again....

The biggest benefit is simply in public opinion, and in the small buyers (stock holders) - almost none of which will, or would be able, to go over the books with a magnifying glass! Of course, the general reputation is shot out there, but it could prevent even further degradation, and help keep stock longs duped a bit longer.

[berklon]

Not surprising.

This is like the Playbook fiasco in that they built and released something that no-one wanted. But at least with the Playbook, the tablet market was still relatively new.

With BB10, Blackberry finally released a phone 5 years later that really didn't offer anything the competition didn't already have years earlier. Somehow Blackberry thought a late "me too" product was going make a difference. Horrible decision.
If you're going to enter the market late, you better show up with something that turns heads.

It'd be nice to see the Z10 or Z30 at fire sale prices like the Playbook.

[mathking606]

Honestly if they can not ship 3 million phones there is a huge problem.