Is The Worst Behind It? An In-Depth Look At Research In Motion's Revenue

Feb.28.12 | About: BlackBerry Ltd. (BBRY)

With my recent article "Caveats And Possible Abuse Of IP Accounting: A Look At Research In Motion" as a prime example, I sometimes like to take an in-depth look at financial statements and the esoteric accounting behind them. While financial statements are usually great reading for inducing sleepiness, sometimes there are some interesting things hidden within. Buried in the heart of Research In Motion's (RIMM) latest quarterly reports (RIM, fiscal 2012) they note some interesting things about their revenues that have not been widely spread.

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First, and maybe most notably, 77% of their $10.9 billion in revenue for the first nine months of fiscal 2012 was from hardware. That is interesting for obvious reasons, but also because while they rightfully tout 75 million subscribers, only 21% of revenues are coming from services. Also somewhat interesting is that hardware and service revenues rose and fell respectively from the prior year by about 4% each. They note that the drop in hardware revenue was "made up of devices that have lower average selling prices and gross margins as compared to those sold in…fiscal 2011". They also attribute the fall due to "PlayBook tablet sell-through programs". Moreover they note a ".4 million (increase) in the volume of BlackBerry handheld devices sold".

Additionally, service revenue while only 21%, increased 28% or $645 million over the previous year. This increase was in spite of the $54 million Q3 Service Interruption. Geographically, international markets drove BlackBerry service plans and subscriber base. They mention the United Kingdom, France, South Africa, Mexico and Argentina. Probably most interesting to this author, they note that 58% of revenues came from outside the U.S., U.K., and Canada. And sales in the U.S. represented only 24% of total revenue, down significantly from the year before. The U.K. and Canada respectively made up 10% and 8% of revenues. They also note a $1.2 billion, or 19% decrease in gross margin.

Contemplating RIMM's geographical related numbers is very interesting considering their reported presence in India and Indonesia among others. Even more detailed explanations of revenues including geographic-specific breakdowns would help flesh out the numbers already presented. While interesting, they are not particularly useful without seeing more contexts. Additionally with lots of talk in the news about lost corporate accounts such as Halliburton (Techcrunch), it is also interesting to be reminded of the percentage breakdown between hardware and service revenues.

There are clear positives and negatives to take away from these numbers. They are neither resoundingly positive nor negative. Earnings on the horizon at the end of March are one of their next notable known events, with negative growth forecasted. They also have new products to be released relatively soon, but so do competitors such as Apple (NASDAQ:AAPL). Viewing RIMM as value play right now is not completely out of reason. In fact there is a real possibility that the worst is behind them, but this play is certainly not for the risk averse.

Disclosure: I am short RIMM.