Wednesday, December 15, 2010

Research In Motion (NASDAQ: RIMM): Q3 Earnings Preview 2011

Research In Motion Limited (NASDAQ: RIMM) is scheduled to release its third quarter earnings after the closing bell on Thursday, December 16, 2010. Analysts, on average, expect the company to report earnings of $1.64 per share on revenue of $5.40 billion. In the year ago quarter, the company reported earnings of $3.92 per share on revenue of $3.92 billion.

Research In Motion Limited is a leading designer, manufacturer, and marketer of wireless smart phone and related services. RIM generates most of its revenues through the sale to carriers of its wildly popular BlackBerry smart phone, which has become a common choice for corporate customers around the world. 

In the precedent second quarter, the Waterloo, Ontario-based company's net income was $796.7 million, or $1.46 per share, compared to $475.6 million, or 83 cents per share, in the year-earlier quarter. Revenue grew 31% to $4.62 billion. Analysts, on average, expected the company to report earnings of $1.35 per share on revenue of $4.47 billion. Gross margin improved to 44.5% from 44.1%. Approximately 52% of revenue in the quarter was generated outside the United States and over 45% of BlackBerry subscriber account base is outside of North America.

At its last earnings call in September, the company said that it expects earnings of $1.62 to $1.70 per share, and revenue of $5.30 billion to $5.55 billion. The company expects to ship between 13.8 and 14.4 million units in the third quarter of fiscal 2011. This increase in unit shipments is expected to be driven by strong sell-through of existing and new products, rollouts of new products such as Torch in markets around the world and channels preparing for the increased demand expected during the holiday buying season. ASP in Q3 is expected to be between 310 and $315 higher than Q2 due to the mix of product expected to ship in the quarter. The company is targeting gross margin for the third quarter to be approximately 42%. Q3 margin is expected to be lower than Q2 primarily due to strong growth in unit shipments driving hardware higher as a percentage of the revenue mix for Q3. The company expects gross margin to remain in the low 40s for Q4. The company is targeting net subscriber account additions for Q3 in the range of 5 to 5.4 million. 

Late in September, the Canadian smartphone maker launched the BlackBerry PlayBook, its first tablet computer. The company is the latest entrant to the tablet computer market and is expected to pose direct competition to Apple Inc.'s (NASDAQ: AAPL) iPad. The device is expected to be available in retail outlets in the United States early 2011 with roll-outs in other international markets beginning the second quarter of the calendar year. The BlackBerry PlayBook will be powered by a 1 GHz dual-core processor and the new BlackBerry Tablet OS. The PlayBook tablet computer represents a potential growth area for RIM. However, few analysts contend that optimism about the PlayBook is a bit overblown. 

Lste in October, RIMM introduced BlackBerry Bold 9780 Smartphone, the newest addition to its BlackBerry Bold series of smartphones. It is the first BlackBerry Bold smartphone to come with the new BlackBerry 6 operating system.

The company's market share is shrinking amid increased competition from Apple’s iPhone and devices that use Google Inc.’s Android software. Between July and October, RIM suffered a 3.5 decrease in U.S. smartphone market share. The Torch, and a number of other new products, have not allayed long-term fears over RIM's competitive strength.

In terms of stock performance, RIMM shares are down nearly 10% since the beginning of the year. 

Full Disclosure: None.
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