
Behind RIM’s $485M Write-off - azazo
http://www.mondaynote.com/2011/12/05/behind-rim%e2%80%99s-485m-write-off/
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raganwald
This contains a very disturbing question about RIM’s accounting practices.
Jean-Louis is being careful to insulate himself from lawsuits by phrasing his
suggestion as a question, but the implication is that either he is mistaken
about what RIM have claimed or that their numbers—especially previous
revenues—don’t add up.

If RIM has been super-aggressive about their numbers in the past, this could
be the crack in the dam that leads to a complete collapse. A one-mighty
company with declining prospects that engages in questionable accounting
practices to delay the revelation of exactly how poorly they are doing...

This is an oft-repeated tale in the public markets, and it always transitions
from drama through horror to pathos.

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nohat
The big question is whether it is actually unreasonable for them to have 2.4
or 4.8 million in inventory. As he points out 700k isn't that much - not
really enough to compensate for the proposed difference between reasonable and
unreasonable excess inventory. Without much knowledge, I doubt that over
estimating demand by a factor of ~4 is unreasonable.

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martingordon
Their inventory went from $618M to $943M to $1,372M in Q1/Q2/Q3 2011 (while
sticking around the $650M mark the two quarters prior), so it is entirely
possible that they did grossly overestimate demand.

Maybe each of their CEOs placed Playbooks orders without the other knowing?

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redthrowaway
On the plus side for Canadian startups: It looks like there will be a glut of
highly-competent engineers on the market in the next year or two as RIM sheds
staff. Waterloo is looking like a lucrative place to launch a startup.

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latch
I don't want to compare RIM employees to Nortel employees, but...I was in
Ottawa through most of Nortel's disaster, and "glut of highly-competent
engineers" it was not.

Surely employees play a significant role in how insanely horrible RIM products
are compared to the competition.

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redthrowaway
Given that RIM has recruited heavily from U of Waterloo, U of T, and the like,
I would hope they have some top-notch technical talent, there. RIM's failures
seem to be driven by upper management more than the rank-and-file. Even if the
engineers were mostly incompetent (unlikely), there would still be some world-
class talent there ready for poaching. Now, whether a startup could compete
for that talent against the likes of a pre-IPO facebook is another matter.

~~~
Bikepump
As a UW grad, I can tell you that most of the best talent from those
universities does not go to RIM, and hasn't for a number of years. Sure they
have a few really excellent people, the few who want to sacrifice better
opportunities to stay local and don't find Google (who have a Waterloo office)
appealing, but the majority of the people in my graduating class who went
there aren't engineers I'd want to work with. And very few of the people they
hire would make it through the hiring process of top companies like Microsoft,
Google, Apple, Facebook, etc.

~~~
jarek
This is accurate. RIM used to be a hot place to go to until 2006 or 07 or so.
It's not the first or the second choice for the good people these days.

I'm sure there's some talent left to be picked off though.

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kabdib
Side note: I had no idea that Jean-Louis Gassée was writing financial stuff
like this. I always wondered what he wound up doing after Apple and Be.

~~~
purephase
Interesting. I didn't notice that at first. Thanks for pointing it out.

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Turing_Machine
He was also one of the leading forces behind the Apple Newton, so he knows a
bit about Tablet Fail.

~~~
ConstantineXVI
Slightly different fail in the Newton's case. The
tablet/PDA/smartphone/MID/palmtop market was niche at best and effectively
non-existent at worst when the Newton came out; it simply was in too small of
a market to go anywhere. The PlayBook, OTOH, showed up in a crowded,
relatively well-established market, and so far has almost totally failed to
get traction with either developers or customers.

~~~
wmf
IIRC the Palm Pilot outsold Newton by a large factor during the same years, so
Newton was a failure even relative to the size of the market.

~~~
mikeash
The Newton was supposedly profitable for Apple. It was killed not because it
lost money, but because it was overall not a good use of resources for Apple
despite making a modest amount of money.

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protomyth
I have heard that if you factor in the development costs, it was not
profitable.

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tici_88
I am not sure where the scandal is here. Playbooks were selling for $499 in Q1
and Q2, and that was for the basic model. Now they get marked down to $199, so
the $485M writedown represents about 1.5-1.6 million Playbooks written down by
$300 a piece.

This is an inventory writedown so probably RIM ordered from the manufacturer
way more Playbooks than they actually ended up selling (no news here) and
whatever inventory was in the "warehouses" so to speak got written down.

~~~
wmf
As the article says, _Accounting rules say inventories are to be valued at the
“lowest of cost or market”_ , not price.

The scandal is that any company would have _over one year of inventory_ in the
modern just-in-time manufacturing age.

~~~
njloof
I wonder if they had a minimum commitment to the manufacturer.

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bane
"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."

Reading the reviews about the lack of basic functionality, like email, it's
possible they could almost all be returned.

The bigger question is, and it's been posed _here_ for more than a year, is
why is the same leadership there? That this is _now_ just being discussed in
analyst assessments in mind boggling.

It's also possible that the 2.4-4.8 million figure makes sense in MBA land.
2.4 million could have been the minimum order number to get the per-unit build
cost down to ~$200 which would have provided enough head room for whatever the
going rate is for one of these things. I've seen crazier justifications for
ridiculous business strategies put forth.

