To begin with, for the third quarter Research In Motion (RIMM) reported better than expected revenue and a smaller than expected operating loss amid very low expectations. RIMM reported third quarter revenues of $2.7 billion and a net loss of 22 cents per share beating Wall Street expectations of $2.6 billion in revenue and an adjusted loss of 35 cents per share.
One of the really positive surprises was that its cash position increased by about $600 million and came in at $2.9 billion for the quarter (mainly due to very smart capital management), even after the funding of all restructuring and product development activities.
One of the most interesting points of the conference call was that the company does not expect its cash position to follow below $2 billion for all of 2013, even amid inventory buildup and marketing expenses associated with the launch of BB10. So while the company will burn cash for inventory and marketing purposes, in no way will this put the company in financial dire straits. So for all those who were worried that the company might run out of money, I think this is simply not an issue.
Working capital increased on a y-o-y basis by about $133 million, the balance sheet remains very strong and I don't see any financial difficulties associated with the launch of BB10 looking forward.
Service revenue will not decline
One issue many commentators bring up is that the company will lose out on service revenue looking forward. This might be true for the transitional period that the company is undergoing - from BB7 to BB10 - however, I think once the enterprise market realizes the benefits of the company's new platform, the enterprise market will return to RIMM, if they actually leave to begin with.
As I said on a previous article on the company (please consider: Research In Motion Poised To Conquer The Enterprise Space Once Again), when it comes to enterprise mobility PaaS solutions (Platform as a Service), there really is no other choice than RIMM's Blackberry Enterprise Services 10 (BES 10). As such, even if revenue does fall slightly during this transitional period (12-18 months), I expect service revenue to kick in again.
But if we take a look at the company's latest Q3 filling, it will seem evident that this is not an issue to begin with:
Please note that while service revenue for Q3 was $974 million or 35.7% of total sales, last year during the same period, service sales were actually lower at $965 million or 18.7% of revenue. So while unit handset sales have fallen dramatically, service revenue is the same.
This does not point to lower service revenue looking forward like many claim. For if service revenue was on the decline, it would decline along the line of handset sales and actual service revenue would be a whole lot less than what it is today.
What this means is that not all users of BB7 devices paid for services to begin with. It also means that those who actually pay for services have remained loyal to RIMM and have not moved to other platforms. As far as I am concerned, this is a big thumbs up towards RIMM from the enterprise crowd.
Given this evidence, not only do I not think service revenue will fall, but I actually think it will rise with the launch of BB10, because many people and companies have been waiting to see the new platform before they commit to it.
Plethora of Apps ready
BlackBerry10 is reported to already have about 150,000 apps ready and willing. In a recent RIMM port-a-thon, about 4,000 apps were submitted in less than 36 hours. So I don't think there will be any shortage of apps when BB10 is launched.
And while the Apple (AAPL) iPhone claims to have 750,000 apps (with 400,000 that have never been downloaded), I don't think that having 150,00 apps is an insignificant number.
The same of course goes for Google (GOOG) and the Android platform. Yes they have may apps but do people really use them? Also, since RIMM is focused on the enterprise market, who cares if there are 1,900 flashlights apps for the iPhone?
Given the strong cash position of the company and given they have been able to execute their current transition strategy flawlessly, while generating strong cash flows at the same time, there is no risk that the company will not have enough cash to build inventory and market the new platform upon launch.
Also, service revenue has not declined in line with unit sale declines, which probably means that service revenue will be strong upon the company's new platform release. And since almost all known apps for the iPhone and Android platform will also be available for the new BB10 device, I don't think consumers and the enterprise customer will be deterred from buying the phones based on a lack of apps.
The only risk is that the new platform does not receive a warm welcome and sales disappoint. But given the enterprise minded scope of the new platform and the features available on the new BB10 devices, I think there is little chance of that.