Turning Positive on RIM Pre-Earnings

| About: BlackBerry Ltd. (BBRY)

Research in Motion (RIMM) is scheduled to report earnings on March 24, 2011. We had previously been negative on the stock and had successfully shorted it throughout 2010. However, we are now turning positive are buying the shares into earnings. We think the February ending quarter was better than most had expected and that guidance for the May quarter should be better than expected. Baring further geopolitical risks, RIMM shares should appreciate 15-20% between now and after earnings as Street estimates come up.

For the quarter we are estimating revenues of $5.8 billion and EPS of $1.85, which is meaningfully above the consensus of $5.6 billion and EPS of $1.75. Guidance for the May quarter could be conservative but we are expecting revenues of $5.85 billion and EPS of $1.80 versus consensus of $5.6 billion and $1.64.

The key metrics and how they should fare:

Net Adds: We see net subscriber additions of 5.45 million with particularl strength in the booming Latin America region supported by strength in the U.K. Note that RIMM no longer provides this metric to investors.

ASPs: We are expecting an ASP of $318 for the quarter, above the company guidance of $310-$315, due to improving mix shift, despite the fact that RIMM is looking to expand into lower ASP regions like Africa, where demand is beginning to thaw. Carriers are shifting to 3G devices over EDGE and the Torch and the 9300 is taking share from the 8520.

Device shipments: We are estimating that 15.1 million units will be sold in the quarter, eclipsing the high-end of the company guidance of 14.5 to 15.0 million units. As noted above, we believe that RIMM will see particular strength in certain geographies and stability in the U.S. Devices such as the Torch, 3G Curve, and BB 6.0, we believe all sold very well in the quarter. The strength should continue into the May quarter with 15.7 million estimated devices sold.

Gross margins should hover around 43.6% consistent with guidance.

As for the Playbook, we believe that RIMM will ship 250,000 units in the May quarter, warding off Xoom and iPad2. Corporations are warming up to the Playbook and we are likely to see major adoption of the device in the coming two years.

Disclosure: I am long RIMM.