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Rim’s cuts at PlayBook factory point to huge inventory backlog

Cuts to 1,000 jobs at Taiwan plant are linked to unsold PlayBook tablets as BlackBerry maker struggles with 6m inventory

BlackBerry maker Research in Motion may have an unsold stockpile of nearly 800,000 PlayBook tablets – more than it shipped to wholesalers and retailers in its first six months – made for it by Quanta Computer, the world’s largest PC contract maker.

Quanta spokesman Elton Yang told the Taiwanese trade paper Digitimes that the company has cut staffing levels on its production lines in northern Taiwan by around 1,000 jobs to less than 2,000. However, he said that those who left had been contractors rather than full-time staff.

While Yang would not confirm who its client is at the affected line, Fubon Securities analyst Arthur Liao said Quanta’s Taiwan factory was specifically for Rim production, and that Quanta had shipped 1.5m PlayBooks in the first half.

Figures released by Rim with its financial results for the quarter to the end of August showed that it shipped 200,000 of the 7in PlayBooks, and 500,000 in the three months before that. The rapid drop in shipments – and apparent lack of interest from buyers – means that it has had to cut back manufacturing.

Orders to Quanta from Rim are reported to have dropped substantially as the company struggles to cope with the excess inventory. At its earnings call last week company executives hinted that they would begin price promotions over the next two quarters to get the devices into end-users’ hands.

Quanta’s decision to cut staff and production suggests that Rim does not expect to clear its inventory before the end of its current financial year, which ends next May.

An examination of Rim’s balance sheet for the quarter shows that inventories – of stock in hand – have risen over the past six months, from 8m at the end of February before the PlayBook was launched, to 3m at the end of May when PlayBook shipments had just begun, to .372bn at the end of the latest quarter. While some of that inventory will include new BlackBerry 7 phones, it is likely that a substantial amount will be PlayBooks.

The component analyst IHS iSuppli reckons that the PlayBook has a bill of materials cost of 1, which would mean that 800,000 would add roughly 6m to Rim’s inventory at cost price, the standard method for recording unsold stock. Unshipped PlayBooks would thus constitute about 15% by value of Rim’s inventory.

Rim had not returned a request for comment ahead of publication.

Liao said that Taiwanese contract makers manufacturing non-iPad tablets were likely to scale back production as sales of the products lagged those of Apple’s iPad. He suggested that Taiwan-based Acer Inc is expected to sell between 1.5m and 2m iConia tablets this year, short of its full-year target of 2.5m.

Some tablet makers have struggled even while the iPad has thrived. HP discontinued its TouchPad device after it had been on sale for just over a month as the company changed strategic direction and decided to withdraw from making mobile devices, including tablets and smartphones. The company is now reported to be laying off staff from its webOS division which wrote the TouchPad software; more than 500 people are affected.

Even so the analysts IDC are optimistic about the prospects for tablets this year, forecasting that a total of 62.5m will be shipped to retailers and wholesalers.

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