Research In Motion - It Only Gets Worse

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

After the bell on Thursday, Research In Motion (RIMM) announced its fiscal first-quarter earnings report. If you thought that things couldn't get worse, well, they did. The only good news I can report is that the cash and investments total increased from $2.1 billion to $2.2 billion. Let's look at the bad news.

Research In Motion reported revenues of $2.8 billion, well below the $3.1 billion that was expected. That number is down 33% from the prior quarter and down 43% from the year ago period. Research In Motion shipped 7.8 million BlackBerry units and 260,000 PlayBooks. That number is down from 13.2 million and 500,000 units, respectively, in the year-ago period. Yes, Research In Motion sold about 260,000 PlayBooks in the quarter.

By way of comparison, Apple (NASDAQ:AAPL) is expected to sell between 1 million and 1.4 million iPads per week. Yes, I said per week. Apple is also expected to sell somewhere around 30 million iPhones in the quarter. Also, Google (NASDAQ:GOOG) just announced the launch of its Nexus tablet yesterday, which will provide further competition to the PlayBook. Microsoft (NASDAQ:MSFT) also announced last week the launch of the Surface tablet, although I expect the Surface to be a higher-priced tablet. Google will definitely be competing with Research In Motion. Microsoft probably won't be competing 100%, but it could steal some PlayBook sales away -- not that there is that much to begin with.

In terms of earnings per share, the company reported a GAAP net loss of $518 million, or $0.99 per share. That compares with a profit of $695 million, or $1.33, in the year-ago period. On an adjusted basis, the company reported a net loss of $192 million, or $0.37 per share. The company took a $335 million charge ($326 million after tax) on the impairment of goodwill. Research In Motion reported a loss of more than half a billion, while Apple is reporting profits of well over $10 billion each quarter.

Gross margins for the period fell to 28.0% from 43.9% in the year-ago period, and 33.4% in the fourth quarter. The company reported an operating loss of $643 million vs. an operating profit of $897 million last year. That means operating margins fell from a positive 18.3% to a negative 22.9%. It can't get much worse than that.

But the worst news came in the BlackBerry 10 update. Many had been hoping for these phones to be out prior to the holiday season, but Research In Motion will not be able to make it. That means that not only will Apple have the new iPhone out before Research In Motion gets the BlackBerry10 phones out, but Apple will have the entire holiday season to itself (ignoring others for this argument). Research In Motion has fallen even further behind, and here is what the company said:

The successful launch of the BlackBerry 10 platform and the delivery of high quality, full-featured BlackBerry 10 smartphones remain the company's number one priority. Over the past several weeks, Research In Motion's software development teams have made major progress in the development of key features for the BlackBerry 10 platform; however, the integration of these features and the associated large volume of code into the platform has proven to be more time consuming than anticipated. As a result, the Company now expects to launch the first BlackBerry 10 smartphones in market in Q1 of calendar 2013.

The company also announced it expects to take about $350 million in restructuring charges as part of the ongoing restructuring program, known as CORE. The CORE process is ongoing, and according to the company is going quite well. The company expects to cut about 5,000 jobs by the end of the year.

Research In Motion stopped providing financial guidance last quarter, so we did not expect any numbers from it now. It did provide the following outlook, however:

The company expects the next several quarters to continue to be very challenging for its business based on the increasing competitive environment, lower handset volumes, potential financial and other impacts from the delay of BlackBerry 10, pressure to reduce Research In Motion's monthly infrastructure access fees, and the company's plans to continue to aggressively drive sales of BlackBerry 7 handheld devices. The company expects to report an operating loss in the second quarter of fiscal 2013, as RIM continues to invest in marketing programs and continues to work through the transition to BlackBerry 10, as well as the company's fixed costs being allocated over a lower volume of shipments. This outlook excludes the impact of charges related to the CORE program.

So expect another operating loss. Also, the company did not initially announce any strategic initiatives, which was the hope. We had heard rumors lately of Research In Motion selling parts of the business to Apple or others, or that potentially Microsoft could buy a stake in the firm. We didn't hear any of that from Research In Motion.

Research In Motion's stock opened lower in after-hours trading, near $7.50, down more than $1.50 in the extended-hours trade, or almost 18%. At some point, this stock is going to get to a point where it will become a buy, as either the company's cash position will exceed the market cap, or a competitor will buy it outright. I'm not sure we are totally there yet.

As for my personal recommendation, Research In Motion might be a buy for a quick trade at the moment. If you remember last quarter, the stock traded down to roughly $12.50 in after-hours trading after closing at $13.73. It rallied about $1 the next day, so those who took the risk in after-hours trading were nicely rewarded. I may even consider buying a few shares. But I will caution you: Last quarter Research In Motion announced it was hiring some advisors for "strategic initiatives." That got investors' hopes up that a buyout might come. We don't have any news like that here.

To conclude, this was a terrible quarter, and the numbers were even worse than expected. Not only did Research In Motion announce a much larger loss than expected, but revenues were down more than 40% over the prior-year period. Also, the worst news was that the company announced it will be delaying the BlackBerry 10 phones until calendar Q1 of 2013. Most were hoping that they would be out for the holiday season. With that now not being the case, expect Apple to have another dominant holiday season. Research In Motion has disappointed many in recent years, and today's news was just another example.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RIMM over the next 72 hours. I may buy RIMM in after-hours trading, but if I do, I will most likely sell the position on Friday.