Is Another Writedown Coming for BlackBerry?

Back in 2011, BlackBerry (NASDAQ: BBRY  ) took a huge inventory writedown related to a glut of unsold PlayBooks. After everything was said and done, the company was looking at a pre-tax noncash charge of roughly $485 million that it had to eat. The company got ahead of itself and built way too many PlayBook tablets that it couldn't' sell.

Could the same fate befall its growing inventory of BlackBerry 10 devices?

Deja vu
One reason why some Street analysts had become so bullish on BlackBerry heading into the earnings release was that supply checks showed BlackBerry's build plans steadily increasing. This was the first full quarter of BlackBerry 10 availibility, and rolling out the Z10 and Q10 into the company's global distribution channel was also expected to give a boost since sales are reported based on channel sell-in.

Well, sell-through is ultimately what matters as the best indication of consumer interest. There had been reports of high return rates, which BlackBerry staunchly denied.

Regardless, what investors now know is that even after filling the channel with BlackBerry 10 units, the company only shipped 2.7 million units. As a result, BlackBerry may have a glut of unsold inventory... again.

Source: Morningstar. Fiscal quarters shown.

The company's inventory carrying value on its balance sheet has just skyrocketed by an incredible 47% sequentially to $887 million. That figure has climbed for the past two quarters, and is now slightly above where it stood immediately after the PlayBook writedown.

BlackBerry has improved its supply chain efficiencies, which helped reduce its inventory carrying balance down to $457 million a couple quarters ago. The company now has nearly twice as much sitting on the books.

Launch quarters should also be marked with the highest sales due to pent-up demand, yet BlackBerry still fell short. Sell-through to end consumers is what matters most now, and since they don't seem to be buying the Z10 or Q10 in droves, BlackBerry may be facing another inventory writedown in the near future.

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Read/Post Comments (11) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On July 03, 2013, at 8:11 PM, mooseelz wrote:

    The Q10 sales figured were minimally shown in the earning report as the handset was released very recently stateside. Though the quarter was disappointing it does not spell the end of Blackberry nor is it reminiscent of the Playbook which was a sub-par device rushed to market unlike both the Z10 and Q10 which have received very good quality reviews. They are also releasing the Q5 and have hinted at a higher end device. Blackberry is light years ahead of where it was last year at this time and though it is no where near out of the woods is heading on a solid path to rebuild.

  • Report this Comment On July 03, 2013, at 9:36 PM, HelpIsHere wrote:

    And this is a complete guess on the part of the author. There is no breakdown as to what the finished goods are really, that's right $ 87 million in finished goods not the massive speculation you elude to. Why can't people do research any more.

  • Report this Comment On July 03, 2013, at 10:19 PM, goog2013 wrote:

    If you could even sell your devices in the first launching quarter, how do you suppose it would sell big in coming quarters?

    BBRY has some paid pumpers every where.

    BTW, I am not a bbry short, I actually bought some today at $9.45

    I am betting the CEO to be fired and some buyout rumors to get some quick money.

  • Report this Comment On July 04, 2013, at 1:54 AM, shirtbrigade wrote:

    Out of one side of this company's mouth, it would not buy its own stock back when in single digits. Out of the other side, they insist they are going to rebuild, they are rebuilding and there is impending success. Well, then buy some stock back and also, show some substantial insider buys. Money where mouth is. Nothing else tells it like it is. No analyst, no guessing, no inside snooping like with amd. Just good old fashioned SELF BELIEF. Well? Do they believe in themselves or not?

  • Report this Comment On July 04, 2013, at 1:54 AM, shirtbrigade wrote:

    PS they certainly have the cash and its not going to help in any other area. So?

  • Report this Comment On July 04, 2013, at 1:56 AM, shirtbrigade wrote:

    PSS or fire the CEO, put it up for sale and prove the old theory about the sum of the parts... but let's not belabor the point. BOD you have a duty. Execute.

  • Report this Comment On July 04, 2013, at 8:57 AM, dannyboy2013 wrote:

    Now that a "smear campaign" against BlackBerry has come to light the BlackBerry stock should recover soon. For a long time now the stock has been bashed relentlessly by nasty and negative articles timed precisely. The press has learned that a select group may be behind this manipulation motivated by hatred over being sued for this same sort of activity by Prem Watsa who is said to be on the Board at BlackBerry and has $700 million in shares of the company. People are possibly being paid to write negative articles and also Analysts to distort and twist things in a negative way to sway public sentiment and drop the stock price. The truth should come out soon enough and all those involved in "smearing BlackBerry" may spend some romantic jail time with BIG BUBBA and the sooner the better. Prem has balls to go after the big boys ! He has true grit !

  • Report this Comment On July 04, 2013, at 9:00 AM, dannyboy2013 wrote:

    http://www.gurufocus.com/profile/Prem+Watsa

    $BBRY Here is something for you to go HMMMM ! Prem Watsa attacked by and sues shorts ! http://www.gurufocus.com/profile/Prem+Watsa Is this our answer?

  • Report this Comment On July 04, 2013, at 9:11 AM, TMFNewCow wrote:

    HelpIsHere,

    Note that the finished goods within inventory immediately before the aforementioned PlayBook charge (August 2011) was $298 million, well below the $485 million pre-tax charge. Finished goods fell to $226 million immediately after (November 2011) the charge.

    Inventory charges do not come directly out of finished goods. The provision for for excess and obsolete inventories can still increase, which is where the charge hits. This rose $474 million in the PlayBook scenario.

    BBRY has more work in process now than it did before the PB charge.

    -- Evan

  • Report this Comment On July 04, 2013, at 10:41 AM, jaberwock wrote:

    Inventory last quarter went from 37% of hardware sales, to 40% of hardware sales.

    Finished goods inventory was almost static, going from $78 million to $80 million.

    These increases should be expected during a period when two new products are being launched. In fact, they seem to be on the low side of what might be a reasonable expectation.

    Please take the trouble to read and analyse the SEC filings before you publish this sensation mongering garbage

  • Report this Comment On July 05, 2013, at 8:27 AM, infektu wrote:

    @jaberwock

    Spot on.

    Does the author really believe that BBRY kept overbuilding weeks before the QR? As if they did not know what the uptake was?

    I have read somewhere else about the "huge Z10 inventory", estimated at ~1M units.

    The BB7 channel inventory was almost a quarter worth, back in June 2012. They managed to clear that out, despite the age of the product.

    I have a hard time to believe that 1M (if the number is correct) is hard to clear. If anything, a lot of the Z10 sellers have been out of stock half the time over tha last 3-4 months.

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