Sales Channel Stuffing: On April 14, 2006, The Wall Street Journal carried an article headlines Research in Motion Skeptics Pipe Up. The article concerned Research in Motion (RIM), the manufacturer of the Blackberry. One week earlier, RIM had disappointed investors with a weaker-than-expected revenue forecast for the current quarter. In the one week period following the revenue announcement, RIM share price declined 9.5 percent. The WSJ article expressed new concerns about RIMs financial performance. RIM generated revenue two ways:

70 percent of its revenue comes from the sale of the Blackberry device

30 percent of its revenue comes from the sale of subscriptions to the wireless network that supports the Blackberry.

Of concern to the Wall Street analysts was the fact that a widening gap was beginning to build between the number of new Blackberry network subscribers and the number of Blackberry devices shipped to retailers. In the latest reporting period, RIM reportedly shipped 1.12 million Blackberries, while new network subscribers totaled only 625 thousands, a difference of about 495 thousands. According to the company, the gap between units shipped and new network subscribers for the prior three quarters respectively was 475 thousands, 335 thousands, and 248 thousands.

Discuss whether RIM was engaging in Channel Stuffing (Channel Stuffing refers to the practice of shipping unwanted and unsolicited goods to retailers, usually with a guarantee to allow the return of any unsold goods). Why is Channel Stuffing of concern to analysts and investors? Have you come across examples where channel stuffing appears to be happening?