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Research In Motion Q3 Preview: Cash, Blackberry 10 Update In Focus

 December 18, 2012 09:55 AM

(By Mani) Research In Motion Limited (NASDAQ: RIMM) (TSE:RIM) is expected to report another weak numbers when it announces its third quarter results on Dec.20. However, all eyes will be on the  BlackBerry 10, which is expected to be launched in the first quarter of 2013.

Wall Street, on average, expects RIM to report a loss of 35 cents a share. In the year-ago period, it earned $1.27 a share.

RIM may want to continue its upside surprise as its loss came in better than the consensus estimate in the second quarter. In the past four quarters, the company's earnings/loss came in past the Street view twice.

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Quarterly sales are expected to be $2.65 billion, a drop of 49.4 percent from last year when it generated sales of $5.22 billion. In the past two quarters, the revenue drop was 33 percent and 19 percent, respectively.

Toronto-based RIM, a smartphone leader once with its BlackBerry devices is struggling to compete with Apple iPhone and other Android smartphones. Moreover, Blackberry's strength in the emerging markets is coming under more pressure as low-end Android vendors gain share.

In September, RIM said operating results for the rest of the year would continue to be impacted by competition, lower handset sales and higher marketing cost related to BlackBerry 10 launch. However, the company said it will continue to market BlackBerry 7 hand-held devices aggressively before the anticipated launch of the BlackBerry 10 smartphones next year.

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For the second-quarter, RIM reported a net loss of $235 million or 45 cents a share, compared to profit of $329 million or 63 cents a share last year. On an adjusted basis, loss was 27 cents per share. Analysts polled by Thomson Reuters expected a loss of 46 cents a share for the quarter. Revenues for the second quarter dropped 31 percent to $2.87 billion.

For the third quarter, RIM expects to report an operating loss as it continues to work through the transition to BlackBerry 10.

As RIM has stopped providing guidance, the key metrics investors should be aware of are shipments, subscribers (if provided), service revenue and cash flow/burn.

"Visibility is somewhat limited, but based upon positive checks in some key developing markets, we believe that net adds will remain positive in the quarter. We continue to believe net adds are the most important metric for investors," BMO Capital Markets analyst Tim Long wrote in a note to clients.

RIM didn't launch any devices for the quarter, and lower average selling prices (ASPs) and upgrade programs are RIMs main levers to drive device sales. As a result, gross margins could be weak in the quarter as RIM sold more high end devices at lower prices and lower gross margins.

"Based on our supply chain checks, we are now forecasting just over 7m phone units for the Feb quarter, and assuming a slightly greater mix of BB10 devices and; therefore, slightly higher ASPs," UBS analyst Phillip Huang said in a note to clients.

RIM still has most of the February quarter to get through before BB10 launches, but investor focus will turn solely to BlackBerry 10. The launch event is scheduled for the end of January, and shipments will come a couple of weeks later.

"We remain skeptical that BB10 will have the traction needed to restore RIM to profitability," Long noted.

On the earnings call, the focus will be less on actual results and more on cash and cash equivalents balance and on company tone and outlook. 



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