Why RIM Is Turning Off The Lights

| About: BlackBerry Ltd. (BB)
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Research In Motion (RIMM) produced another awful-terrible-no-good-very-bad-quarter. Numbers were disappointing, missing on both earnings and revenues. Smartphone deliveries were down 25%.

Moreover, RIM is going dark: No guidance to future earnings, revenue, or unit volume. The company is leaving investors to guess what's in store.

My take: It's going from bad to worse.

Per its conference call, RIM doesn't have a high end smartphone to compete with the iPhone and it is selling low ASP merchandise. The promised Blackberry 10 is pushed back to the end of year.

As we move into the first quarter, we expect revenue will show a sequential decrease based on lower unit volumes, less favorable smartphone ASP mix and the adoption of new pricing smartphone and service initiatives in order to increase the sell-through and selling of BB7 products. We expect the downward pressure on operating earnings to continue throughout the year based on the market dynamics noted above, existing fixed costs being spread over lower volume of shipment.

I've been warning investors off RIM for years.

RIM's profits per unit have crumbled, now less than half last year's numbers. The trend is worsening. (Note: The numbers remove the one-time inventory write-offs. Left in, the numbers are even worse.)

(Fiscal years 2007 thru 2012. Average profits per unit = operating income/number of devices.)

RIM makes $42 on each sale, a two-third drop from 2007 and one-half drop from 2011. It wouldn't be so bad if its competitors were finding the same market conditions. They are not. Consider Apple (AAPL), the company that has been responsible for much of RIM's pain. Here are Apple's average profits per unit.

When the destroyer can command increasing profits on its products and yours are collapsing, that's a recipe for disaster.

By the way, look at RIM's operating margins, a much more conventional method of assessing a company. You'll note abysmal numbers for 2011. However, margins didn't disintegrate until 2011, hiding the pain that awaited investors. Note that average profits per unit, my metric, signaled RIM's coming troubles as early as 2009 when the stock was $75 rather than $15.

(Fiscal Years 2006 to 2012)

RIM is no longer guiding investors, leaving them stumbling in the dark. That makes sense: Silence is preferable to declaring the bitter numbers ahead. Analysts haven't gone quiet. Consensus estimates for the next two quarters' EPS has been cut by a third over the last week and will probably go lower.

RIM sells an outmoded product. If you want to see RIM's future, extend my graph of average profits per unit. Why has RIM gone dark? The future is way too scary: Best to leave the lights off. That way, investors won't have to see the miserable future ahead. RIM has a lot to solve. In the meantime, I'd stay away the stock.

Disclosure: I am long AAPL.

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