RIM Investors Hope for Takeover After Earnings Miss

December 22nd, 2011 by Trefis Team
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RIMM: Research In Motion logo
RIMM
Research In Motion

Research in Motion (NASDAQ:RIMM) announced its December ending Q3 FY2012 results last Thursday that were below its own guidance levels, as expected. (see RIM Earnings Preview: Another Round of Weak Results Expected) The company reported revenues of $5.2 billion, less than even the lower-end of its guidance for the quarter. [1] Following the announcement, RIM’s stock collapsed almost 8% in after-hours trading yesterday. The company has lost over 70% of its stock value in the past year having struggled to hold on to its smartphone market share in the face of  increasing competition from Apple’s (NASDAQ:AAPL) iPhone  and Google’s (NASDAQ:GOOG) Android-based smartphones.

See our note that discussed RIM’s potential suitors: RIM’s Takeover Talks Grow Stronger as Amazon, Microsoft Take Closer Look

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See our complete analysis for RIM stock here


Blackberry shipments

The last three quarters have seen RIM’s shipments of Blackberry phones decline steadily from close to 15 million in the first quarter to less than 11 million last quarter. However, the launch of the new Blackberry 7 phones helped RIM stem the decline and post shipments of 14.1 million for the quarter. Investors need to note here that shipments to sales channels doesn’t imply actual sales to customers. Although shipments rose 33% q-on-q, the actual sell-through to customers wasn’t so impressive. This has led RIM to guide for only 11-12 million Blackberry shipments next quarter.

Moreover, its new Blackberry 10 phones will not be available until the later part of next year. A big reason why RIM has lost out to its competitors has been the delayed product launches. In fact, the company attributed the poor sell-through of its Blackberry 7 phones to its delayed launch, among other reasons. The company has been pitching its new line of smartphones, built on the new QNX platform, to turn around its flagging fortunes for quite some time and we were hoping to see it in the early part of next year. However, a delayed launch will now pit RIM against Apple’s next-generation iPhone and Nokia’s extended range of Windows phones, in addition to a horde of newer and improved Android phones. Increased competition poses greater risk to Blackberry’s already declining market share next year.

Sales and Marketing expenses to increase

The later-than-expected launch of the BlackBerry 7 smartphones caused the company to delay its advertising and marketing efforts, leading to lower operating costs for the quarter. Operating costs declined approximately 10% from the second quarter. However, this means higher sales and marketing costs next quarter. With the BB10 smartphones some way off and Playbook’s update 2.0 also not expected until February at least, the company is relying on its marketing and promotional offers to drive sales of all its devices throughout next year. However, given the poor sales so far, we are skeptical about the company’s ability to sell phones solely based on advertising.

We have updated our price estimate for RIM stock to $16.12, which is around 15% ahead of market price.

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Notes:
  1. RIM’s CEO Discusses Q3 2012 Results, SeekingAlpha Call Transcript, December 15th, 2011 [↩]