BlackBerry’s swelling inventory of unsold smartphones is approaching the $1 billion US mark, raising the chance the company will make its fourth writedown in two years when it reports earnings next week.
BlackBerry reported a 47 per cent gain in the value of its inventory in the June quarter, bringing the figure to $887 million US — 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 Toronto-based 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.
“Inventory has been growing in the channels,” said Huen. Depending on how much money BlackBerry has spent producing the phones, “another writedown is likely,” he said.
Writing off the unsold phones would put a dent in net income and signal that the BlackBerry 10 operating system isn’t fueling a turnaround for the Waterloo -based company. The move also would extend a streak of inventory charges, which were spurred in part by the ill-fated PlayBook tablet. The company took a pretax expense of $485 million US in December 2011, a second charge of $267 million US the following March and a third writedown of $335 million US in June 2012.
The prospect of more writedowns is looming as the company tries to streamline its workforce, potentially bringing restructuring expenses as well. The Wall Street Journal reported Wednesday that BlackBerry is looking to eliminate as much as 40 per cent of its staff. While company spokesperson Adam Emery declined to comment on the figure, he said “organizational moves will continue to occur.”
BlackBerry will report its fiscal second-quarter results before trading on the Toronto Stock Exchange and Nasdaq Stock Market opens on Sept. 27. Analysts are projecting sales of $3.03 billion US on average, according to data compiled by Bloomberg. That would be up atbout 5.5 per cent from a year earlier but down 1.3 percent from the previous quarter. They estimate that the company will post a loss of 16 cents a share, excluding one-time items such as a potential inventory writedown.
Thompson has lowered his estimate for BlackBerry 10 phone shipments in the most recent quarter to three million from five million. He is one of 22 analysts who rate BlackBerry a sell. That compares with eight buy recommendations, and 14 analysts with the equivalent of a hold, according to data compiled by Bloomberg.
“Why would you commit to a platform that you don’t know is going to be around?” he said. “The actual announcement of the strategic review is what is going to torpedo this company.”
BlackBerry may wait until later in the fiscal year to do a writedown, said Colin Gillis, an analyst at BGC Partners in New York. Heins also has to consider how a writedown would be perceived by possible buyers of the company, Gillis said. They may be less likely to pay a good price if the inventory situation is bleak, he said.
“If they want to clean up the books — take the charge maybe,” Gillis said in an interview. “But it’s also hurting your ability to catch a premium.”
Original article: BlackBerry will need to make another writedown.