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RIM Remains Optimistic, Despite Q3 Hit

RIM Remains Optimistic, Despite Q3 Hit
December 21, 2012 11:03AM

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Although optimism for RIM's BlackBerry 10 (BB10) has been growing in recent weeks and helping RIM shares more than double off the 52-week low, analyst Shaw Wu says there's still need for broader BlackBerry 10 support. On the upside for RIM, is the company's $2.3 billion in cash reserves, despite its huge operating losses.

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Research In Motion's third-quarter results didn't surprise many analysts. Nevertheless, investors were selling off shares Friday as the BlackBerry-maker signaled falling unit sales and revenue. RIM only shipped 6.9 million BlackBerry smartphones and 255,000 BlackBerry PlayBook tablets.

Revenue for the third quarter of fiscal 2013 was $2.7 billion. That's down 5 percent from $2.9 billion in the previous quarter and down 47 percent from $5.2 billion in the same quarter of fiscal 2012. About 60 percent of RIM's revenues came from hardware, 36 percent for service and 4 percent for software and other revenue.

"RIM continued to execute on its product roadmap plans and to deliver on key financial metrics as it gets set for the global launch of BlackBerry 10," said Thorsten Heins, president and CEO of RIM. "During the third quarter, we continued to demonstrate our strong financial position, generating $950 million in cash flow from operations, and increasing our cash position significantly to more than $2.9 billion."

Handset Sales Slow

Heins remained optimistic. He said more than 150 carriers are completing technical acceptance programs for the first BlackBerry 10 products, and beta trials of BlackBerry Enterprise Service 10 are under way at more than 120 enterprises, including 64 Fortune 500 companies. BlackBerry 10 rolls out on Jan. 30.

Still, RIM admitted that the picture might grow dimmer before BlackBerry rises again. RIM expects to feel continued pressure on operating results as it gets set to launch its BlackBerry 10 platform in its fourth fiscal quarter. The company said it plans to consider using pricing initiatives on BlackBerry 7 devices and service fees in some markets as a way to maintain its subscriber base and drive more BlackBerry users.

RIM also noted that the timing of the BlackBerry 10 launch event could impact sales of current BlackBerry 7 products as some customers may put off purchase decisions and wait for BlackBerry 10 devices. All these factors are expected to affect unit volumes, subscribers, margins and service fees. RIM signaled a significant increase in its marketing spending this quarter to support the global launch of BlackBerry 10. That will lead to a fourth-quarter operating loss.

Hanging in the Balance

Shaw Wu, an analyst at Sterne Agee, told us the most important metric remains RIM's $2.3 billion in cash despite huge operating losses.

"It is not clear how sustainable this is as this is an accounting maneuver as opposed to an improvement in its fundamentals," Wu said. "The other big question is whether the company has a sustainable profitable business model where it needs to invest heavily to keep up with the vast resources of Apple, Google and Microsoft. The company is currently losing several hundred million dollars per quarter with profitability likely four to five quarters away."

Although optimism for BB10 has been growing in recent weeks -- and helping RIM shares more than double off the 52-week low -- Wu said there's yet a need for broader BlackBerry 10 support.

"For carriers, the rationale is simple where many are increasingly leery of the growing dominance of iOS and Android and have been looking for a viable third or potentially fourth platform with the hope that either BB10 and/or Windows 8 takes off," Wu said.

"But does the world really need a third or fourth mobile OS touchscreen platform? And what makes it different? So far, developer support and customer adoption have been lukewarm, so it remains to be seen if carrier hope wins out. To us, it's not just the number of apps, but the quality of apps, and whether developers are making money and customers are using them."

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