Research in Motion (RIMM) Dissapoints on Guidance and Misses on Current Quarter

As I wrote yesterday

Remember, we are about to enter earnings season (3rd quarter) - we've been pointing all year to the disaster that 4th quarter earnings estimates are. Analysts are modeling 60%!!! year over year earnings growth in Q4 2008 over Q4 2007. Stil. A few months ago they were modeling 30%ish Q3 2008 over Q3 2007 as they cheered the "2nd half 2008 recovery". Now that's dropped to a negative rate. So I expect a lot of Kool Aid to be let out of the market by corporations in this earnings season... or put another way - they are going to dampen down Q4 expectations big time. And you know what that means for stock prices... the minute earnings are released people wonder what guidance will be and react in lemming like fashion.

... this is going to be one mighty dangerous earnings season as company after company is going to have to reset future guidance expectations since analysts are not doing their job and using their brains to bring it down themselves. Now with that said, I did not expect Research in Motion (RIMM) to be one of these to cut back guidance so starkly.

• Research in Motion Ltd., maker of the BlackBerry, expects its earnings in the current quarter to fall below analysts' forecast. RIM said Thursday that it expects earnings in the third fiscal quarter, ending Nov. 29, to come in between 89 cents and 97 cents per share. Analysts polled by Thomson Reuters had been expecting earnings of 98 cents per share.

Unlike Apple (AAPL), they are not notorious lowballers on guidance... but with such an exposure to corporate customers (many of them financial) as they transition to a more balanced customer base (corporate versus consumer) I guess this was not too surprising. The stock is down 17% on initial glance in after hours. Again, the risk/reward is simply not in the bulls corner except in a few cases. And the same bulls who promised you a "second half 2008 recovery" will now tell you "nevermind that guidance - the 1st half 2009 recovery is what you need to focus on" Remember the source of your info as you assimilate their repeated promises of nirvana just around the corner.

• BlackBerry maker Research in Motion Ltd. says its earnings for the latest quarter rose 72 percent. The results missed analyst expectations by a penny per share. RIM said Thursday it earned $495.5 million, or 86 cents per share, in the fiscal second quarter, which ended Aug. 30. That compared with net income of $287.7 million, 50 cents per share, in the same quarter last year
• RIM sold 6.1 million BlackBerrys in the quarter, short of the 6.3 million expected by RBC Capital Markets analyst Mike Abramsky.
• RIM said its profit expectations were based on a gross margin estimate of about 47%, below the 50.7% mark shown in the second quarter. (troubling - I'd like to hear more about why that is)
• It also said it added more than 2.5 million subscribers in its second quarter and that corporate clients are continuing to buy its smartphones despite the economic slowdown. (yes, but at the same pace?) "Our enterprise business remains strong and our momentum in the consumer marketplace continues as we head into the holiday buying season with an amazing product portfolio and solid marketing support from partners," co-CEO Jim Balsillie said in a statement.
• There had been concern among analysts and investors that as the economic downturn takes hold, some of RIM's large corporate clients could scale back BlackBerry purchases and upgrades, hurting the company's performance.

Great company - great product line in the future - great results for almost any other company out there but expectations are high for Research in Motion. So for now this is only for very long term investors. Maybe they can petition to get on the no short list or something...

We closed this position out last week in the $103s range.... the stock bottomed at $80 in the worst of it in January 2008. If that level is breached there are a lot of air pockets below - boy you might even be talking $60ish worst case. Currently it sits at $81 in after hours.

The risk reward in this market is simply not in bulls favor, and missing out on days like today is fine with me with the carnage seen in a lot of individual stories. Hold onto your hats for this earnings season - should be a doozy.

No position