(By Mani) Shares of Research In Motion Ltd.
) (TSX:RIM) continued its rally on Friday by opening 12 percent higher after surging about 20 percent Thursday after its quarterly results sprang a surprise to investors, who looked to dump their shares but not before having a final glance at the performance during June to August period.
The quarterly numbers were a welcome bit of good news as the BlackBerry maker reported an increase in its subscriber base, expanding emerging market presence and improved liquidity.
RIM's second-quarter net loss was $235 million or 45 cents per share, compared to net income of $329 million or 63 cents per share last year. On an adjusted basis, loss was $142 million or 27 cents per share. Analysts polled by Thomson Reuters expected a loss of 46 cents per share for the quarter. Analysts' estimates typically exclude special items.
Revenue for the second quarter was $2.9 billion, up 2 percent from $2.8 billion in the previous quarter and down 31 percent from $4.2 billion in the same quarter of fiscal 2012. Analysts expected revenue of $2.5 billion.
During the quarter, Waterloo, Ontario-based RIM shipped about 7.4 million BlackBerry smartphones, down from 10.6 million shipped in the year-ago quarter. The company shipped 130,000 PlayBook tablets, which is half of what it shipped in the first quarter. However, the average selling prices increased to $228, higher than the consensus estimate of $194.
However, the BlackBerry subscriber base increased to about 80 million, cash, cash equivalents, short-term and long-term investments increased by approximately $100 million to $2.3 billion at the end of the second quarter. Cash flow from operations was approximately $432 million in the second quarter.
The results show management is doing the right things from a cost and balance sheet management perspective. This should buy RIM time by preserving cash and retaining as much of a base as possible into the BB10 launch in the first quarter of calendar 2013.
The company grew subscribers with momentum in South Africa and Asia Pacific and aggressive promotions of its BB7 family, implying that emerging markets should be the next leg of growth for RIM, whose market in the U.S. is shrinking with each day as new versions of iPhone and Android phones come in to the market.
"These accomplishments are certainly noteworthy given the low expectations ahead of the BB10 launch scheduled for CQ1 of 2013. We expect these trends to continue into Q3 and up until the BB10 launch," CIBC analyst Todd Coupland said in a client note.
RIM's share price is clearly rallying sharply on these results, and the news earlier this week of fairly positive early reviews for BB10 features such as Flow, Hub, Peek, and the new browser bodes well for the launch. The important unknown is the sustainability of this recovery and how broadly will BB10 be accepted World-wide.
"Early input from our carrier contact suggests that BB10 will benefit from upgrades from existing Blackberry subscribers with higher-end Bolds. What is not clear is whether BB10 will have the appeal to win back lost market share from Samsung and Apple," Coupland noted.
For the time being, reduced operating expenses, a stable cash position together with a BB10 upgrade, upside from the base will take RIM's shares higher.
In addition, testing of BB10 devices from carriers next month will produce a significant amount of feedback on their opinions on whether BB10 is worth pushing. Also, a lot will depend on the carrier promotions that are expected later this Fall.
"We will have a better idea of the quality of promotions by the time Q3 is being reported," Coupland added.
A key catalyst would be the launch dates, timing and eventually success/failure in key markets/carriers such as Verizon (NYSE:VZ), AT&T (NYSE:T), Vodafone, Rogers, Telkomsel (Indonesia), Vodacom (South Africa) and dozens of others. Again a global launch is expected fairly quickly once RIM formally releases BB10 versus stagnated releases in prior years.
With that said, the company is not out of the woods yet, and the recovery would take time.
"Overall, we expect the business to continue to bleed over time with losses to Apple's iPhone and a stronger Android eco-system. We're also cautious of RIM delivering a sustainable recovery post-BB10's launch," Oppenheimer analyst Ittai Kidron wrote in a note to clients.
The company expects that there would be continued pressure on operating results for the remainder of the fiscal year based on the increasing competitive environment, lower handset volumes, increased marketing expense associated with the launch of BlackBerry 10.
The company plans on driving sales of BlackBerry 7 handheld devices aggressively by continuing to invest in targeted marketing and sales programs before the anticipated launch of the BlackBerry 10 smartphones.
It expects an operating loss in the third quarter of fiscal 2013 as RIM continues to work through the transition to BlackBerry 10 and completes its CORE restructuring program.
RIM, which was once the uncrowned king of smartphone world, is betting big on BB10 to revive its fortunes in the smartphone market, which has been dominated by Apple Inc. (NASDAQ:AAPL) and devices running Google's Android operating system.
"International traction could help offset potential market share losses, but overall sentiment remains poor, and we remain on the sidelines until there are signs of sustainable improvement in the meaningful headwinds," Kidron added.