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Massive delay does not sit well amid falling earnings

Waterloo, Ontario-based Research in Motion, Ltd. (TSE:RIM) tried to put on its most cheerful face reporting its fiscal Quarter 3 2012 earnings (calendar quarter 4 2011).  The numbers weren't great, but they weren't worse than expected either, living up to analysts' somewhat grim predictions.

I. RIM Can't Find an LTE Chipset to Save Its Life

The biggest story was not the earnings itself, but the earnings call in which RIM announced its BlackBerry 10 OS would be delayed half a year.  Wrote Canadian brokerage firm National Bank Financial, "RIM confirmed the BlackBerry 10 smartphones will be delayed until the latter part of calendar 2012. This could be game over for the BlackBerry franchise."

Nomura analyst Stuart Jeffrey in a research note to investors concurred that this could be the end for RIM or at least was a huge hit.  He writes, "We see a high risk that this is too late to turn around RIM's position and believe the risk of further delays is meaningful.  Even in the best case, however, it seems unlikely RIM will have large volumes of its BB10 devices on sale within 15 months."

BBX -- or should we say "BlackBerry 10" -- has been delayed half a year. [Source: RIM]

RIM's co-CEOs, Mike Lazaridis and Jim Balsillie, defend the decision to push the future of the company, well... into the future.  They said that RIM would "bounce back" from "some of the most difficult times in the history of this company".

In the conference call Mr. Lazaridis blamed the delay partially on RIM's inability to find an LTE capable chipset, a somewhat astounding excuse given the volume of LTE chipsets.  He states:

As I said on the last earnings call, we are focused on delivering a high quality, fully featured user experience when these products are launched. This means having a well-developed ecosystem of publications and services both in the hardware specifications, industrial design, and application features that will meet the expectations of consumers in the competitive US market. To achieve this goal, we need a highly integrated dual core LTE platform. The processor we selected offers industry-leading power and efficiency, and also allows us to deliver the industrial design that we believe is critical to the success in this market segment. This chipset will not be available until mid-2012, and as a result of this and certain other factors, we now expect our first BlackBerry 10 smartphones to reach markets in the latter part of calendar 2012.

For their failure the pair of co-CEOs have agreed to take pay cuts down to a $1 USD/year salary, effectively immediately.

II. "I find your lack of confidence disturbing" 

Investors' patience with the pair is waning.  Several high profile investors have put together plans advising the company to revamp its bizarre management structure.  They also suggests exploring the option of a sale.
RIM co-CEO Jim Balsillie
RIM co-CEO Jim Balsillie may be all laughs and grins, but his company's increasingly abysmal U.S. sales outlook has given investors little to crack a smile about. [Image Source: Reuters]

To recap the latest developments: It's hard not to be skeptical of RIM's future given its increasing abysmal string of misfires and embarassments in the last three months.

All this seems very ironic given Mike Lazardis's 2009 quote to Fortune -- "Sometimes we have to put the brakes on.  We've shown that we can handle annual 100% growth. I'm not sure we could handle more than that."

It's certainly done a remarkable job putting the brakes on its growth, that can be said for it.

III. The Financials

Now back to the financials themselves.

For the revenue RIM cheerfully highlights, "Revenue of $5.2 billion, up 24% from last quarter."

That $5.223B USD (GAAP adjusted) is a far cry from RIM's original outlook of $5.3B-$5.6B, which it was forced to adjust downwards just weeks ago, in an effort to soften the blow.  It's also down 4.95% from the company's reported revenue $5.495B USD in fiscal Q3 2011, a year ago.

Why compare to fiscal Q2 2012 only, when Q3 revenue has always been higher than Q2 revenue for RIM?  Such quarter-to-quarter comparison are not unusual, but companies typically put both the quarter-to-quarter and year-to-year numbers in the highlight, if they differer substantially.  

RIM reports a "GAAP net income of $265 million or $0.51 per share diluted; adjusted net income of $667 million or $1.27 per share diluted."

This is down from a net revenue of $877M USD ($1.67 USD/share) in Q3 2011, a plunge in profits of 22.7 percent.

About the only hopeful numbers for RIM come in its subscribe counts, which rose 35 percent on a year to year basis, hitting "almost 75 million", with 14.1 million BlackBerry smartphones sold in Q3 2012.  But that optimism is tempered by the fact that the global smartphone market is growing is predicted to have grown 55-57 percent in 2011. 

In other words, the comprehensive picture from the earnings report is that RIM may be growing its subscribers, but it's falling behind its competitors in growth and is seeing its profitability plunge.

BlackBerries in the trash
[Image Source: LihPao]

Perhaps most telling is the fact that RIM has only $1.5B USD in cash on hand.  That means that just one or two quarters in the red could sink the veteran firm.  For that reason, it's hard not to agree with the analysts at the NBF -- this could be "game over" for RIM.

Sources: RIM, Barrons, Reuters

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RE: You sure?
By JasonMick on 12/16/2011 12:06:55 PM , Rating: 1
$5.2B is under 8% less than $5.6B. You sure that's a far cry?
Yes in the business world, cutting your outlook 8 percent could fairly be considered a "far cry" though of course they'll try to put a cheerful spin on it.

But I really think the more important number to look at is the GAAP adjusted net income. It fell 22+ percent. And RIM only has $1.5B USD in the bank. If it doesn't do something fast, it may soon be posting losses within a year or two and it doesn't appear to have anywhere near enough cash to weather that storm.

That's why I think it's fair to be critical of the delays and the company's current management direction.

I'd actually love to see RIM succeed as more competitors means more competition and more competition means better products. Now, I would have loved to see Palm/Hp succeed, too, but we can't always get what we want. I just don't think RIM's current strategy is cutting with consumers, although they remain popular with some hardcore users (including doubtless some readers of this site).

RE: You sure?
By bug77 on 12/16/2011 12:17:40 PM , Rating: 3
I really think the more important number to look at is the GAAP adjusted net income .

For you, maybe. I don't even know what that means :-D

RE: You sure?
By bug77 on 12/16/2011 12:50:11 PM , Rating: 2
Now I know.

RE: You sure?
By Da W on 12/16/11, Rating: 0
RE: You sure?
By Ringold on 12/16/2011 1:07:48 PM , Rating: 1
But I really think the more important number to look at is the GAAP adjusted net income. It fell 22+ percent.

Brutal.. I don't know if they can avoid being taken over or at least seeing a lot of heads roll before BB10 hits. Like others have said, better to get a 3G version out while people wait to get a tourniquet on that bleeding.

RE: You sure?
By bobdelt on 12/16/2011 2:17:07 PM , Rating: 3
How do they burn through their cash with POSITIVE CASH FLOWS?

They are still making money. They are not depleting their cash reserves.

They could operate for years with the financial condition of the company. It's not doom and gloom because of their financial condition, but because they have no product to compete. It's over. But they have years and years of trying before they fold. I doubt they're even a probable acquisition target at this point, the market is too mature.

RE: You sure?
By Pirks on 12/18/2011 12:44:51 PM , Rating: 2
How do they burn through their cash with POSITIVE CASH FLOWS?
You should ask this question to reasonable/adequate analysts on the other sites/forums, asking trolls like JM or retro is like talking to a mechanical doll. They will always tell you same mechanically programmed story that RIM is doomed just because the US market share is falling and market analysts THINK that RIM stock is worth nothing. Remember - market does not care about what tech RIM has on hands, market these days only cares about US market share. RIM can post all sorts of gains in international markets, people can kill each other in long lines trying to get fresh new BB7 phone in Thailand and all sorts of stuff like that, but JM and retro trolls will ignore this stuff on purpose. These two are very predictable, they will ALWAYS ignore ANY positive news about RIM and always spin ALL the negative bits they can find. Don't waste your time.

RE: You sure?
By robinthakur on 12/19/2011 7:53:54 AM , Rating: 2
And RIM only has $1.5B USD in the bank

This is the truly shocking stat here, but you can see that they have wasted the money on things like the Playbook and other things which failed to take off. Meanwhile, Apple has more cash than the US government! Sounds like RIM have loads of R&D to do to get close to getting OS10 out the door, but by that time, who are they going to be competing with? iOS6? Ice Cream Sandwich? They have totally missed the competition boat even worse than MS, at least MS have a decent product out there.

RE: You sure?
By Pirks on 12/19/2011 11:31:33 AM , Rating: 2

"Economics 101
By Strunf on 12/19/11, Rating: 2
By Strunf on 12/19/2011 8:00:34 AM , Rating: 2

"Perhaps most telling is the fact that RIM has only $1.5B USD in cash on hand. That means that just one or two quarters in the red could sink the veteran firm."

For a company that is worth $7B USD that is a load of money, more so when they are making money. Even if they come up red it doesn't mean they will sink, there are plenty of companies that have seen red for years and keep going, how often has AMD turned a positive profit? sure note the same thing but RIMM probably has a bunch of patents that I'm sure some would pay a load of money to get.

I'm not saying they have a bright future ahead but they are still in the game!"

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