Tuesday, June 14, 2011

Research In Motion (NASDAQ: RIMM): Q1 Earnings Preview 2012

Research In Motion Limited (NASDAQ: RIMM) is scheduled to release its fourth quarter earnings after the closing bell on Thursday, June 16, 2011. Analysts, on average, expect the company to report earnings of $1.32 per share on revenue of $5.15 billion. In the year ago quarter, the company reported earnings of $1.38 per share on revenue of $4.24 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 preceding fourth quarter, the Waterloo, Ontario-based company's net income was $934 million, or $1.78 per share, compared to $710 million, or $1.27 per share, in the prior year quarter. Revenue grew 36 percent to $5.6 billion from $4.1 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of $1.75 per share on revenue of $5.63 billion.

Late in April, the company slashed  its earnings forecast for the first quarter, anticipating weaker-than-expected shipment volumes of BlackBerry smartphones and a shift in the expected mix of devices shipped towards handsets with lower average selling prices. The company said that it now expects first quarter earnings of $1.30 to $1.37 per share, down from its previous forecast of $1.47 to $1.55 per share. RIM also warned that revenue for the first quarter would be slightly below the previously provided guidance range of $5.2 billion to $5.6 billion.  Gross margin for the first quarter is expected to be similar to the 41.5% previously guided.

Wall Street expects that smartphone shipments will come in around 13.3 million units for the quarter, with about 436,000 shipments of the company’s PlayBook tablet that hit the market during the period.

For the full fiscal year 2012, RIM now expects earnings of about $7.50 per share. Previously, the company expected earnings to be in excess of $7.50 per share for the year. RIM noted that it expects strong revenue growth in the third and fourth quarters of the fiscal year, due to new product launches and prudent cost management.

The company's market share is shrinking amid increased competition from Apple’s iPhone and devices that use Google Inc.’s Android software. RIM's grip on the corporate smartphone market has loosened since Apple's iPhone and then Google's Android software transformed the sector. On Thursday, investors will be closely watching smartphone shipments and subscriber growth for the quarter. Moreover, the delay in smartphones launches based on BlackBerry OS 7 and QNX operating system creates uncertainty around its future product line-up. The Canadian company's struggle to compete is unlikely to get any easier, with Apple's upcoming iCloud service expected to hurt RIM.

The company is now trying to to reinvigorate itself and match the momentum of rival mobile giants Apple and Google. Last year, the Canadian smartphone maker launched the BlackBerry PlayBook, its first tablet computer. According to analysts, RIM could leverage its established presence in the enterprise market to lift its tablet sales. 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.

RIM is also relying on emerging markets for revenue growth as competition from Apple and Google Inc.’s Android cut into its U.S. sales. Early this month, the company unveiled plans to launch the BlackBerry PlayBook tablet in an additional 16 markets around the world over the next 30 days. RIM also recently unveiled two new BlackBerry Bold smartphones. 

The company's stock currently trades at a forward P/E (fye Feb 26, 2013) of 5.73 and PEG Ratio (5 yr expected) of 0.53. In terms of stock performance, RIM shares have lost 37% since the beginning of the year.

Full Disclosure: None.
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