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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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I can't help but feel that LTE is over-hyped.
By idiot77 on 12/16/2011 12:07:20 PM , Rating: 2
LTE sounds great, and I would have loved to been able to put it to good use. However, the cap on data plans makes having all that bandwidth almost pointless.

I never felt like needed faster data on my 3G phone on Verizon. It's slower than my computer, but then again I'm not entirely sure my Droid 3 would be able to display web pages any faster with a faster pipe even with an AOSP ROM.

I certainly don't use video on my phone except on very rare occasion. So who needs a fat pipe when your pool is only 6" deep anyhow?

Where I would have loved to have LTE was in the rural places where you can't get broad band of any kind. Too bad that's not where the service is.

RE: I can't help but feel that LTE is over-hyped.
By bug77 on 12/16/2011 12:20:38 PM , Rating: 2
LTE sounds great, and I would have loved to been able to put it to good use. However, the cap on data plans makes having all that bandwidth almost pointless.

And that's the real danger of having data caps. Once in place, there's no guarantee they'll follow data transfer speed improvements. I mean, 5GB may seem more than reasonable today, but nothing guarantees that 10 years from now that limit will be elevated by a single kB.

RE: I can't help but feel that LTE is over-hyped.
By name99 on 12/16/2011 4:24:03 PM , Rating: 2
Look, this is just dumb.

(a) The carriers cannot deliver more total capacity than the system is engineered for. Bandwidth caps or not, there is only so much to go round.

(b) Bandwidth that is NOT sold to a user is like an airline seat that is not sold --- it does no-one (including the carrier) any good.

(c) LTE substantially improves spectral efficiency, meaning that there will be that much more total capacity. Either that gets used allowing more people to use smartphones (which seems fair), or it goes unused because people hit their data caps --- in which case the carriers will increase the data caps.

The bottom line is that
- someone has to pay for the system
- it is simply a fact that there is not enough wireless capacity for us all to do whatever we want with it.

I'm no fan of the carriers, and I think plenty of the things they do are stupid, petty, and self-destructive. But I'm also no fan of this idiotic mindset that simultaneously complains about
(a) data caps (a symptom that we don't have enough capacity) AND
(b) LTE (an attempt to increase the capacity)

RE: I can't help but feel that LTE is over-hyped.
By bug77 on 12/17/2011 9:47:52 AM , Rating: 3
Look, this is just dumb.

If you're a carrier, maybe.
If I pay for 30Mbps, I expect to be able to use that 30Mbps, day or night. If you can't provide that, don't sell 30Mbps plans. It's that simple.
And before you think of some alternative theories, I'm not in the US, I pay for 30Mbps and I get 30Mbps, day or night. It's DSL, not LTE, but it's still ISP rules.

RE: I can't help but feel that LTE is over-hyped.
By Dorkyman on 12/19/2011 10:19:33 AM , Rating: 2
What I don't understand is that there is now news that LTE and GPS don't play well. How can LTE be allowed to continue, given that incompatibility?

I don't expect the FCC to say, "Sorry consumers, your GPS units are crap, gotta buy new ones with tighter filters."

And the LTE approval process stinks of politics. Could it be that LTE is eventually banned?

RE: I can't help but feel that LTE is over-hyped.
By Cheesew1z69 on 12/19/2011 10:28:53 AM , Rating: 2
It's LightSquared that is having the problem. Does Verizon and the others use LS?

By Dorkyman on 12/19/2011 1:11:34 PM , Rating: 2
So then the LTE concept doesn't necessarily interfere, just Lightsquare's implementation? There are other LTE vendors that don't show interference?

My understanding was that the spectrum slot allocated to LTE was meant to be for satellite communications, implying very weak signals on the ground, and that politics in Washington decided that a strong signal could be blasted from terrestrial antennas, something never originally intended for that slot. Am I missing something?

RE: I can't help but feel that LTE is over-hyped.
By adiposity on 12/16/2011 1:21:44 PM , Rating: 3
While I agree I don't like data caps (I have grandfathered unlimited data from Verizon), I disagree that they make LTE "pointless".

The bottom line is most people don't use a lot of data on their phones. But when they do, wouldn't it be nice if it were incredibly fast? For example, when I download large android apps, they take a few minutes to download. Sometimes that's quite inconvenient, if the app will solve an immediate problem. A 10 second download would improve my experience drastically.

There is no need to use large amounts of bandwidth to appreciate increased speed.

Now, granted, higher bandwidth opens the door to streaming, etc. And if you are going to do those things, you will probably need more data. But just because there are caps that discourage those things, doesn't mean the higher speed is useless! It just means it doesn't translate to higher total usage available.

As someone who rarely streams, and has no intention of watching many videos on my 4" screen, I would still like LTE, if it doesn't waste power as it currently does.

RE: I can't help but feel that LTE is over-hyped.
By 3DoubleD on 12/16/2011 3:39:01 PM , Rating: 2
You make 3G sound like dial-up. I can get large (>30 MB) apps in a matter of seconds over 3G on my Motorola Droid, and it's not even the latest and greatest of the 3G tech.

This whole LTE thing is marketing hype. The same as putting a quad core in a smartphone. Yes there are cases where it offers better performance, but the rest of the time it's just killing your battery, or at best, offering no tangible difference. I need LTE in my smartphone like I need a hole in my gas tank in my car.

Instead of worrying about constantly increasing network bandwidth, please invest in:
1) Amazing displays,
2) Lean and optimized ROM builds,
3) Great battery life
4) Great signal coverage and reception
5) Competitive pricing and services

The only items carriers should be worried about is #4 and #5. You compete with these items. The rest they should leave to the handset manufacturers.

RE: I can't help but feel that LTE is over-hyped.
By adiposity on 12/16/2011 6:23:51 PM , Rating: 4
You make 3G sound like dial-up. I can get large (>30 MB) apps in a matter of seconds over 3G on my Motorola Droid, and it's not even the latest and greatest of the 3G tech.

From 2010:

The speeds have changed a little since 2010, but basically, the average speed was between .8mbps (verizon) and 1.4mbps (at&t).

A 30MB file is 240Mb. Divide that by .8 (Verizon, which I use) and you get 300 seconds.

That's great that you can download 30MB file in a "matter of seconds" but 300 is a large "matter". The speed in your area may be faster than in mine (I live in bay area). Who knows. But if the average time to download a 30MB file is 5 minutes, then you are an outlier (or just a liar :p).

By twhittet on 12/16/2011 6:33:38 PM , Rating: 3
+1 for actually using facts rather than an exaggerated personal observation.

By rubbahbandman on 12/16/2011 7:49:25 PM , Rating: 3
I'm far more impressed with anecdotal evidence. This "math" business is very fishy to me...

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