Friday, September 25, 2009

Research in Motion (RIMM) Fumbles

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Research in Motion (RIMM) is a funny company who has not learned the Apple (AAPL) way: lowball guidance to such a degree that you always beat it. RIMM seems to alternate between missed and beats every 1-2 quarters, but a lot more "misses" the past year. Each time one of these quarters come up, all the questions about long term growth trends, competition and the like appear. Then the next quarter Research in Motion beats... and those questions all go away. And so and so we go...

This also raises a larger question for earnings session that we are about to embark on. Unlike July 2009 when expectations were far lower, and the market had taken a breather after a frantic run up from the March lows we are going into this earnings season on a streak of 25 winning days out of 30. Now, while I am sure year over year comparisons versus the "End of Days" we were facing at this time in 2008 will be a snap to beat for many companies. And analysts most likely are still behind the curve of how low costs are once one cleans out so much of one's "overhead" (read: workers) So it's going to be a far more interesting battle between numbers that should still be easy to beat (which appears all that matters on Wall Street) and any semblance of valuation (which does not seem to matter) Put in English, it doesn't matter if your stock trades at 120x forward earnings as long as you "beat the number".

But if you miss the number or provide disappointing guidance? Some things never change - you get hammered. As Research in Motion did last night in after hours - down 11%. As I say every time RIMM misses (which seems to be quite often), these metrics are still "to die for" for most companies in the world.


Technically, the 50 day moving average is in the $77s which surely RIMM will open below. The low of the month is $72, and of the past two months is $70. 200 day is down there as well; obviously this is still a secular growth story for a longer term investment it is attractive at some of these lower price points. I am more focused on the supplier base, so it would not be surprising to see those names sell off in sympathy - although it would make little sense; they are arms suppliers to the whole space.

Via AP
  • BlackBerry maker Research In Motion Ltd. reported a drop in fiscal second-quarter profit Thursday because of charges for a patent settlement and said revenue for the current quarter will fall below Wall Street's expectations. Shares plunged more than 11 percent in extended trading Thursday.
  • Waterloo, Ontario-based RIM earned $475.6 million, or 83 cents per share, for the June-August period, down 4 percent from $495.5 million, or 86 cents per share, in the same period a year earlier. Adjusted earnings totaled $1.03 per share, excluding a charge for a patent settlement payment to mobile e-mail provider Visto Corp., which claimed RIM was using its technology without a license. That topped analysts' average estimate of $1 per share, according to a Thomson Reuters poll.
  • Revenue rose 37 percent to $3.53 billion from $2.58 billion but fell shy of the $3.63 billion in sales that analysts had expected.
  • Research and development expenses in the second quarter jumped 30 percent to $235.6 million, while costs to sell and market products rose 13 percent to $429.7 million, RIM said.
  • RIM said it added only 3.8 million new subscribers, the low end of its forecast.
  • The average selling price in the current period will be about $320, co-Chief Executive Officer Jim Balsillie said on a conference call with analysts. The price was about $345 in the second quarter, Chief Accounting Officer Brian Bidulka said on the call. Both were below the $357 price in the first quarter. (trend not great, but as long as costs are wrung out of the product, gross margins can be protected) “Our goal is to get more and more mainstream and get more and more volume,” Balsillie said, explaining why the average selling price will be lower in the third quarter. “This is kind of a land grab.”
  • Gross margin, the percentage of sales left after production costs, narrowed to 44.1 percent from 50.7 percent in the second quarter of 2008. RIM forecast a third-quarter margin of about 43 percent. (this stat is an obsession with followers of "gadget makers")
  • RIM has said its market share of the U.S. smart phone market had grown to 55 percent by mid-June, from 40 percent about six months earlier. The company didn't update the figure on Thursday.
Guidance (revenue appears light):
  • RIM also said revenue for the current quarter is expected to be in the range of $3.6 billion to $3.85 billion -- short of the $3.95 billion analysts have forecast.
  • ... says it expects an adjusted profit for the fiscal third quarter of $1 to $1.08 per share, a range that surrounds the current $1.05 per share consensus estimate.
Analyst reaction:
  • Nick Agostino, an analyst with Research Capital, said the guidance and results raise questions about whether other smart phones have been cutting into RIM's business but said the results are not that disappointing. "It wasn't a blow out quarter," Agostino said.
  • (Analyst) Chopra said consumers aren't replacing phones as often, so carriers aren't rebuilding inventory. Balsillie said Thursday that its carrier partners were expected to maintain low inventory for the time being.
[Jun 18, 2009: Research in Motion Disappoints on Subscriptions, Guidance]
[Apr 13, 2009: Research in Motion Squeezes Blackberry Subscribers as Economy Falls]
[Apr 3, 2009: Research in Motion Soars on Solid Numbers]
[Feb 11, 2009: Research in Motion Outlook Snares Bulls]
[Dec 3, 2008: Research in Motion Warns]
[Sep 25, 2008: Research in Motion Disappoints on Guidance and Misses Quarter]

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