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Tuesday, October 25, 2011

RIM's Bloated Inventory



Let's face it, the playbook has been a dud. It was rushed to market to compete with the iPad and it shows. In Rim's conference call they mentioned some 'key features' that would be added in the new software release which included native email, calendar and contacts. It doesn't take a Steve Jobs to realize they should have been included from day one!


Rim has been forced to publicly declare that the Playbook is not dead (it just launched!). Retailers are massively dropping prices to work through inventory that RIM probably pushed them to buy (accounts receivable as a percent of sales increased 23% from the prior year in Q2).

However, what is even more worrying is compared to the prior year inventories more than doubled while sales fell. A 'report' from Fubon Securities analyst Arthur Liao said that the company had shipped 1.5 million PlayBooks in the first half. I still can't find the original report from Fubon Securities report but assuming it is true, Rim would have 800 000 playbooks that have not been sold shipped. Assuming a 25% retailer gross margin and 40% gross margin for RIM the playbook should be approximately $247.5 per unit to manufacture, this would leave $198m in inventory. 

HMS Playbook
Before the Playbook, Rim was running inventory at about 20% of sales, thus inventory is $538m over 'traditional' levels. Therefore the Playbook  at most only explains about one third of RIM's bloated inventory. It would seem that the Playbook is not the only device experiencing a slow sell through.

Regardless of what portion of the excess inventory is due to the Playbook one thing seems certain: Inventories are bloated and will continue to add pressure to margins going forward.

For more info on my thoughts on RIM click here.


notes:

aug 27 2011 may 28 2011 feb 26 2011 nov 27 2010 aug 28 2010 may 29 2010 Feb 27 2010 nov 28 2009
ar 3571 3772 3955 4100 3216 2649 2594 2922
inventory 1372 943 618 679 645 555 660 613
sales 4168 4908 5556 5495 4621 4235 4080 3924
ar/sales 86% 77% 71% 75% 70% 63% 64% 74%
inventory/sales 33% 19% 11% 12% 14% 13% 16% 16%


actual inventory 1372
traditional level 20% 833.6
surplus 538.4
playbook 198
blackberry 340.4








3 comments:

hardcore value said...

So far 9% of the people reading this article are using a Playbook. *akward! no disrespect given!

hardcore value said...

more price cuts
http://www.theglobeandmail.com/globe-investor/retailers-offering-deep-discounts-on-rims-playbook/article2241405/

hardcore value said...

http://www.theglobeandmail.com/globe-investor/rim-to-miss-targets-take-playbook-hit/article2257745/

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