After the market close, RIMM reported fiscal 1Q12 earnings. A few things stood out to me.
1) RIMM will begin a headcount reduction. As millions of consumers switch to smart phones from feature phones, RIMM is cutting back. While it is understandable for a company to remove redundancies and waste, the writing is on the wall; RIMM had invested for a much bigger company compared to what it now sees itself as going forward. Can things change? Sure. Will things change? Not likely. Fixed costs can sure be a killer when your products sit on store shelves.
2) RIMM shipped 500,000 Playbook tablets. Keyword being shipped. The difference between shipped and sold? When a product leaves the factory (in a boat, plane, car, truck, mule), the product is characterized as “shipped”. No consumer has purchased the unit. RIMM’s 500,000 Playbook number is largely related to RIMM filling the Playbook inventory channel (the location between factory and consumer). It’s one thing when you ship a product that people are buying (iPad), but when you are shipping a product that no one is buying, you have the classic channel stuff.
3) Management wants to buyback RIMM stock. While RIMM’s business is falling apart on all sides, management wants to spend part of its precious cash chest ($2.9 billion) on buying back its tanking stock. While buying back stock can carry a lot of different meanings, largely depending on which industry a company is operating in, stock buyback in the technology industry does not carry a positive connotation. Instead of using money to better your position to innovate, buying back a stock that finds itself on a slippery slope screams desperation and a ploy to show Wall Street that management holds confidence in the future (Wall Street rarely cares - quickly seeing through the action like swiss cheese).
4) Guidance gives perspective. In the matter of a few weeks, RIMM cut its annual guidance by 30%. Given RIMM’s size, cutting guidance by 30% in such short order is not caused by one bad product launch, or by economic concerns impacting your consumer base. A 30% guidance cut is evidence of stuffing the inventory channel with a ton of product and finding out that no one was actually buying your product. A 30% guidance cut is evidence that your fixed cost base is quickly eroding profits as your new product lineup is delayed and your old product line up is stagnant. A 30% guidance cut for a mobile phone company during the age of the mobile revolution should speak volumes for the amount of trouble RIMM is facing.
Going forward, look for liquidity to be a front and center issue for RIMM. For management to have any chance of a comeback, it needs ample cash, and a $2.9 billion war chest contains only limited opportunities.