RIM: Watching a Looming Train Wreck

Call it morbid obsession, but I can't seem to stop watching the downward spiral of BlackBerry (Nasdaq: RIMM; Toronto: RIM). At EBN, we've reported often on the mobile phone maker's malaise. At first, I discounted it as a few quarters of bad financials. Then it became evident that RIM was facing much deeper issues. A lack of innovation was quickly pushing it out of the two-ring smartphone circus dominated by Apple Inc. (Nasdaq: AAPL) and Google (Nasdaq: GOOG).

Today, I don't know if I find the Canadian company's latest "business update" just really sad or slightly comical in a twisted, cynical way. It's probably a little bit of both.

News popping up on the Internet points to a glut of BlackBerry smartphones and PlayBook tablets. RIM's stockpiles "have swollen by two-thirds in the past year because of slumping sales, raising the chances of the company's third writedown since December," Bloomberg reports. "The value of RIM's in-house supplies grew 18 percent last quarter alone, a faster rate than at any other company in the industry... and that doesn't include the BlackBerrys gathering dust at RIM's carriers and retail partners."

The value of RIM's inventory climbed to $1.03 billion last quarter from $618 million a year earlier, according to Bloomberg. At the end of 2011, after shipping only 150,000 of its PlayBook tablets in the fourth quarter, RIM took a $485 million pretax charge. For the quarter that ended in March, it tallied up another $267 million of BlackBerry inventory-related expenses.

A billion dollars in inventory? Really? Is that just sad or laughable as a management strategy? What is it going to take to keep this train from derailing? Yes, innovation. The problem is that RIM isn't likely to be able to invest significantly in innovation right now -- or innovation-centric people -- because it will have to spend its time and money on stopping the bleeding.

How do you do that? With layoffs. MSNBC reports that RIM is planning a global restructuring that could cost 2,000 employees, about 12 percent of the company's workforce, their jobs. The report cited an article in Canada's Globe and Mail.

The company keeps saying a new line of phones based on BlackBerry 10 software will be coming to market soon. Naturally, no one wants to buy the old stuff if new stuff is in the pipeline. As a result, we have a sick cycle -- RIM can't sell what it has, it can't get to market fast enough with a product some may find appealing, and the longer it delays innovation and a market launch, the more likely people will be to buy from a competitor. That means less sales, more inventory, and more writedowns. I just want to shake executives and ask, "What the heck are you doing?!?"

RIM is scheduled to report quarterly results on June 28. Maybe I'll keep a box of tissues near my desk. Then again, maybe it's not worth shedding any tears at this point.