Jaguar Financial Corp: BlackBerry sales in Q2 2012 exceeded market expectations, RIM may not have to worry about survival

BlackBerry sales exceed market expectations

September 28, 2012 , according to foreign media reports, in the second fiscal quarter ending September 1, RIM's BlackBerry global sales exceeded market expectations, largely due to the company's continuous efforts to regain lost ground in emerging markets. This also seems to mean that RIM still has room to survive in the global smartphone market dominated by the iPhone.

In the second quarter, RIM's revenue and shipments both exceeded Wall Street expectations, which directly pushed the company's stock price up 20% after the market. RIM's smartphone sales in the quarter reached 7.4 million units, which exceeded the average analyst expectation by about 500,000 units. At the same time, RIM's net loss was lower than market expectations and its cash reserves increased. This performance did surprise some of RIM's most critical investors, including shareholder Vic Alboini, who had been demanding that RIM adjust its management and corporate strategy.

Elberni, CEO of Canadian investment company Jaguar Financial Corp., said in an interview with the media yesterday: "These figures bring very positive signals to the company. RIM has shown an upward trend and they have found the right path for future development."

Although RIM's market share in the United States has been eroded by Apple's iPhone and Google's Android devices, its second-quarter results show that the company has the ability to win users in markets with lower per capita incomes around the world, such as Asia and Africa.

The biggest challenge facing RIM now is whether the BlackBerry 10 series of mobile phones can be successful, which is the company's top priority for regaining the smartphone market.

"If RIM can continue to increase its cash reserves in the third quarter and launch BlackBerry 10 products in the coming months, investors will think, 'Maybe RIM has a chance to turn things around,'" said Neeraj Monga, an analyst at Veritas Investment Research in Toronto.

Stock price surges

As of 9:52 a.m. local time on the 28th, RIM's stock price rose 27% in Frankfurt stock market trading, and once reached a high of 6.78 euros (about 8.80 U.S. dollars) per share. After the announcement of its second quarter results yesterday, RIM's stock price rose to 8.90 U.S. dollars per share in after-hours trading on the Nasdaq stock market, an increase of 25%. As of Thursday's close, RIM's stock price closed at 7.14 U.S. dollars per share in regular trading on the Nasdaq stock market, an increase of 2%; the company's stock price has fallen 68% in the past year.

RIM's free BlackBerry Messenger (BBM) service is popular among consumers in developing countries, but data plans are often expensive. RIM CEO Thorsten Heins, who just returned from market research in Asia, the Middle East and Africa, said on a conference call: "It's great to see that BBM is really popular in these countries. I mean, BBM is almost everywhere in these regions."

RIM also had more cash than some analysts expected, as it cut operating expenses by 7.9%. In the second quarter, RIM's cash and investments totaled $2.3 billion, compared with $2.2 billion in the first quarter.

"RIM's cash reserves won't be depleted in one or two quarters, which gives us a chance to see how BlackBerry 10 performs," ​​Elberny said.

BB10 may miss the shopping season

In the second fiscal quarter, RIM's revenue fell 31% year-on-year to US$2.87 billion, but still exceeded the market's average forecast of US$2.47 billion.

But while BlackBerry sales exceeded analysts' median forecast of 6.9 million units, they were still far behind Apple Inc's iPhone, which sold 5 million units in its first week on the market.

BlackBerry's installed base grew to 80 million in the second quarter from 78 million in the previous quarter. However, the launch of the new BlackBerry 10 series of phones has been delayed by at least a year, making it harder for RIM to compete with the latest devices from Apple and Android. At RIM's developer conference in San Jose, California this week, Heins said BlackBerry 10 would be available in "a few months," but did not give a specific timeline.

The delayed launch means BlackBerry 10 will miss this year's traditional shopping season, while new Android devices and Microsoft Windows 8 phones will be released before the shopping season.

According to statistics released by market research firm IDC, RIM's share of the global smartphone market has fallen to 4.8% in the second quarter of this year, compared with 12% in the same period last year. Heins said this week that BlackBerry 10 will beat Microsoft Windows and become the world's third largest mobile operating system, behind only Google Android and Apple iOS.

Facing continued pressure

RIM reported a net loss of $235 million, or 45 cents per share, in the second quarter, compared with a net profit of $329 million, or 63 cents per share, in the same period last year. RIM Chief Financial Officer Brian Bidulka told analysts on a conference call that the company expects to face an operating loss in the third quarter and will feel "continued pressure" from operating losses for the rest of the fiscal year.

Baidukka said RIM will adopt an "aggressive pricing strategy" to maintain its current user base growth trend.

William Power, an analyst at investment firm Robert W. Baird & Co., pointed out: "While we are pleased to see that RIM's costs and balance sheet have improved, we also realize that selling products below cost is often not a long-term solution." Power still maintains a "sell" rating on RIM's stock price.

Gus Papageorgiou, an analyst at Canadian investment bank Scotia Capital, raised his rating on RIM's stock price to "sector perform," while Kris Thompson, an analyst at investment firm National Bank Financial, also raised his rating on RIM's stock to "outperform."

Cost reduction

Heins, who took over as CEO in January, has implemented a cost-cutting plan to improve the company's loss-making situation. He will cut nearly a third of jobs and close some factories to improve production efficiency.

RIM has also hired JPMorgan Chase and RBC Capital Markets LLC to look for other strategic options. Heins told investors yesterday that he has discussed BlackBerry 10 licensing and cooperation with many CEOs in the past few months. He plans to continue discussions with potential partners and has not set a specific deadline for the strategic review of BlackBerry 10. Heins has said that he has not ruled out the possibility of selling the company.

Jaguar Financial's Elberni said RIM needs to continue discussions with potential partners because there is no guarantee that BlackBerry 10 will be the company's savior.

"RIM is still losing money and it has to have a contingency plan ready to go," Elberny said.