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.

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.

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?

I agree it’s guesswork. Are they writing 2.4 million tablets down to zero? 4.8 million tablets down to $99? Is either number ridiculous?

The other possibility he questions is whether they reported as sales shipments that were not really sales. As he points out, there are upcoming opportunities to clarify these numbers, and I think that part of the purpose of the article is to goad analysts into throwing some hardball questions at RIM.

Well if we assume 5M tablets made, and Kindle cost is estimated at $205 then selling out Playbooks in a firesale at $99 (known price point where even pets will buy an Android tablet) you get 5M (total) - (7. sold) = 4.3 * $106 per tablet loss = $455M (solving for X would give you $113 loss per tablet or $485M.

I've talked with Quanta before and I don't think they would have taken on the project without a 5M commitment, hence my guess at the number of playbooks made.

It would be sad to see another Canadian tech giant brought down by accounting issues.

When the dust settles, you don't really think that the problem with RIM, or Nortel, are "accounting issues", do you?

I spent 30 years in Ontario. RIM and Nortel confirm my own thoughts on the matter: the talent pool in Ontario (possibly Canada) isn't even close to making local tech companies globally competitive.

The pay isn't close to making a competitive talent pool happen either. Chicken, egg...

I'm from Waterloo (RIM's hometown) so I'm biased, but there is a significant flow of Ontarians to Silicon Valley, Redmond and NY whereas there's no corresponding flow from the US to Ontario. So I'm tempted to call it a shortage of jobs rather than people.

Also from Waterloo, but I think you got this mixed up. There is an outflow of talent because there are only few exciting, innovative places to work in Waterloo. So sure, you can call it a shortage of jobs, but really the culprit is a lack of innovative/entrepreneurial/managerial expertise. Things are changing for the better, but slowly.

Also, it's goina be pretty hard to convince someone from Silicon Valley, NY (or even Redmond) to move to Southern Ontario, let alone Waterloo, unless your doing some really cool, or you can pay them a lot. Obviously people who go to school here are much more likely to stay, but even then, most of them would take a job in California if they had the chance.

As an Ontario boy working in Silicon Valley, there are really very few local Californians working in tech here. Talent goes where the jobs are; companies go where the talent is. If you want to discovery why one place ends up being a magnet over another place I know some profs at Waterloo who do research on exactly this question. Anyone looking for a PhD?

Nortel's accounting problems were extremely bad by any standards and made a mediocre situation terminal. Nortel had the possibility to be at least as successful as Ericsson (which isn't saying much, but). I hope RIM isn't full of Nortel's old accounting people.

I know next to nothing about Ontario, but don't they have at least a few great universities? I know there's Waterloo and U of Toronto. Are they not big enough to provide a good pool of talent?

Yes. Whoever blames the employees here is hiding their head in the sand. Same with blaming the climate or "entrepreneurial spirit" or whatever. There are good schools and talented people. As with any place there are the great and the mediocre. Offer the great $100k out of school and reasonably interesting work like they can get in Seattle or Mountain View and you will find that it is quite easy to get globally competitive talent.

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.

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.

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.

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.

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.

I would expect the highly driven, world-class talent to have moved on swiftly after completing their grad program, if RIM's failures go all the way up.

You can be a technically brilliant engineer, but if you have a horrible sense of business/intuition, it's still possible to 'maroon' yourself at a stagnating company. There's a lot to be said for the "safe" option.

Facebook is opening an office literally right down the street in Kitchener, in anticipation of RIM's collapse.

http://www.techvibes.com/blog/facebook-expanding-its-canadia...

> in anticipation of RIM's collapse.

Is this really a stated reason? I would have thought it was to get Waterloo grads. Waterloo is literally one of the top CS and engineering schools in the world.

I'm a Waterloo graduate. A Microsoft recruiter told me of any school they hire the most from Waterloo.

There were endless tech company visits when I was there.

RIM isn't the only company in Waterloo either: Sandvine, Sybase, etc.

That's speculation on my part and others, a reporter normally would not publish something like that.

Ah, ok, then I strongly suspect the main reason is the University of Waterloo and Facebook's decision has very little to do with RIM.

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.

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

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

Well, so do I (since I worked on the Newton). :-)

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.

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.

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.

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

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.

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.

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

Part of the "scandal" the article mentions is the possibility that a portions of RIM's recorded revenue does not quality as such, since it could have been for Playbook's that could be returned to RIM.