[lomed7724]

A Hidden Reason Research In Motion's Future Looks Bright (RIMM)

[Mystic205]

While the state of the future of RIM is open to opinion and debate, and I am not making an opinion here on that future, I can see no reason, based upon the inventory data, to conclude that RIM future is bright.

Quite the converse..

Total combined inventory levels are currently running at ~35% of sales. This is a very high number. Two years ago, and in a time period of ongoing sales growth, inventory costs sat in a 15-20% band. As MF indicates, it is a plausible construct that this high level of inventory represent a company anticipating growth, however the same data would also result when a company expects to sell more product than it actually does. ..

As the data clearly indicates, as RIM sales softened, the inventory levels climbed. Given RIM did NOT indicate to the market with any degree of forewarning that sales would be soft, the logical conclusion is that RIM manufacturing were geared up for far higher volumes than the resulting sales delivered...

If sales had been on a general upward trend (ie predictable operating environment) and inventory levels made a knee turn upward by 5-8% for seemingly no reason, I would make the same conclusion as MF.. but given the combination and correlation of inventory and sales data I cannot agree.

I will let the reader interpret this for themselves..

[ccbs]

While the state of the future of RIM is open to opinion and debate, and I am not making an opinion here on that future, I can see no reason, based upon the inventory data, to conclude that RIM future is bright.

Quite the converse..

Total combined inventory levels are currently running at ~35% of sales. This is a very high number. Two years ago, and in a time period of ongoing sales growth, inventory costs sat in a 15-20% band. As MF indicates, it is a plausible construct that this high level of inventory represent a company anticipating growth, however the same data would also result when a company expects to sell more product than it actually does. ..

As the data clearly indicates, as RIM sales softened, the inventory levels climbed. Given RIM did NOT indicate to the market with any degree of forewarning that sales would be soft, the logical conclusion is that RIM manufacturing were geared up for far higher volumes than the resulting sales delivered...

If sales had been on a general upward trend (ie predictable operating environment) and inventory levels made a knee turn upward by 5-8% for seemingly no reason, I would make the same conclusion as MF.. but given the combination and correlation of inventory and sales data I cannot agree.

I will let the reader interpret this for themselves..

Very nice analysis.

On last conference call there is an inventory related write off and strong indication that they will have to slash price to way below cost to sell off channel inventory. Made no mistake, the sale has definitely softened. Verizon provides a glimpse into their number few days ago. Out of the 6.3 millions new smartphone users, 3.2 millions are iphone users and 2.9 millions are LTE smartphone users, which in Verizon lineup is all android. This leaves only give and take 0.2 million new users that could be either on old android/Palm or BBOS. If I recalled correctly, this is dwindling down from last quarter 0.4 millions. Given that Google reportedly discontinued google sync on BBOS, it worsened the perception of BBOS. The lame duck status of BBOS 7 makes it even more difficult for RIMM to sign up new casual smartphone users on BB phone.

With all these said, I really failed to see how inventory built up due to soft demand can be interpreted as having a bright future.

[Mystic205]

thanks,

good data from VZ btw..

Yes, my point was that imo MF is making the poor assumption that the increase in inventory is deliberately managed, as a precursor to ramping sales, rather than an by-product of poor sales performance.

Even if you wished to make the assumption of stockpiled inventory for new product/market device launch and growth, the fact remains that the current inventory levels are those for a $8Bn/qtr run rate...which wont be happening anytime soon..

I had not continued with my analysis beyond offering an alternative analysis to the "bright future" however it would certainly have concluded with some major inventory write-downs..probably 4Q12/1Q13 timeframe..and, if BB10 has a good launch, I wouds suspect all possible writedowns to be flushed prior to end feb 2013, to keep it all in the current fiscal year..and allow RIM to start the following year with a cleaner slate.

Very nice analysis.

With all these said, I really failed to see how inventory built up due to soft demand can be interpreted as having a bright future.