BlackBerry Will Live To Fight Another Day

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On Monday, September 24, Research In Motion (NASDAQ: BBRY) started trading with a volume of about 20 million and a price of $6.37. By Thursday, the volume traded had increased to 72 million and the price had risen to $7.20. And then Friday, the day after the BlackBerry maker came out with the Q2’13 earnings, the volume traded reached a whopping 122 million and the stock hit $8.20 during intraday trading. So, we can say, this past week has been an interesting one for RIM for a change.

<img src="/media/images/user_13114/rimm_sep-28-price-chart_1_large.jpg" />

(Source: Yahoo Finance)

The quarterly figures
As the company reported the earnings for the quarter, it took many analysts by surprise since they had been expecting utterly disappointing results. While those tracking the company expected RIM to report a loss of $0.46 per share on revenues of $2.5 billion, RIM came out beating the analyst’s grim estimates and reported revenues of $2.9 billion and a $0.45 loss per share. Surely expectations were not high for RIM to beat the estimates. Still, this had a favorable impact on the stock price and a lower than expected performance would have killed the phone maker for sure. At least now, analysts and industry experts feel that the company will live to fight another day.

<img src="/media/images/user_13114/rimm-q213-financials_large.jpg" />

(Source: RIM Releases)

Though the top line was down 31% from the prior year period, the figure was up 2% sequentially. Even the bottom line, though still in the red, improved a lot sequentially as the phone maker reported a net loss of $235 million as against the $518 million loss of Q1’13. The net loss for the quarter, after adjusting for the $136 million in pre-tax restructuring costs, came to $142 million, or $0.27 per share.

The company received approximately 60% for its revenue from hardware, 35% from service and 5% from software and other revenue. During the quarter, a total of 7.4 million BlackBerrys were shipped along with 130,000 Playbooks. However, this was not an improvement when compared to the 7.8 million BlackBerrys and around 260,000 Playbooks shipped in Q1’13 or the 10.6 million BlackBerrys and 200,000 Playbooks shipped in Q2’12. The company also confirmed its subscriber base has reached 80 million users worldwide.

The current market situation and the competition
Lately, RIM has been surviving on the low end BlackBerry Curves and largely on outside US markets as the US markets have not been equally responsive. Management is happy with consumers in markets such as South Africa, Indonesia, India, and Saudi Arabia among others while the US markets are more in favor of the latest from other phone makers.

What RIM needs at the moment is huge sales volume. But good volumes from low-end BlackBerrys will only ensure survival for the company. If RIM intends to gain back its lost market share, the company needs to sell more of its high-end devices. While RIM waits until Q1’13 for the launch of the BB10 devices and continues to test and prep its latest, many consumers might choose not to wait. Phone makers looking to reap the benefits of the holiday season have launched their new phones. Apple reported to selling 5 million units of the highly anticipated iPhone 5 in the first week after its launch. Even the South Korean phone giant Samsung released the Galaxy SIII device ahead of the iPhone 5 launch. Both these devices have been doing very well and it seems BB is missing out on all the action.

Very soon, even Microsoft’s (NASDAQ: MSFT) WP8 powered devices from Nokia (NYSE: NOK) will hit the streets and act as fresh competition from BB10. According to RIM, the latest BB platform will be something absolutely different from the existing BB platforms and in this respect both RIM and Microsoft have something in common. Unlike the iOS and Google’s Android, the WP8 and BB10 have not been around previously and thus will need to create totally new demand for the offerings. Nokia has already unveiled Lumia 920, its flagship offering and this will set a standard for the latest BlackBerrys also in terms of hardware specifications. Both being fresh issues, consumers and industry experts will be directly comparing the platforms.

Since Nokia will launch the WP8 powered Lumia in early November, ahead of BB10 launch, RIM will get some idea on how the consumers might react to a new platform. The situation will shed some light on whether the consumers be willing to shift from the already well-known and accepted Android and iOS platforms to grab something which hasn’t yet been used earlier. While the success of the WP8 phones may act as a demand killer for the BB10 devices, it will also suggest that consumers are open to changes. If RIM can develop a genuinely strong and better platform, the consumers will not mind to shift to the BlackBerrys again, just like they won’t mind choosing WP8 over iOS and Android.

Concluding thoughts
Amidst the negatives, now there are some positive points about RIM that suggest the company might persevere for some time and get its turn in the spotlight once the BB10 devices are launched. At the end of the quarter, RIM was sitting on a cash pile of $2.3 billion, suggesting an increase of $100 million. Many analysts took this as a positive sign and Veritas Investment Research analyst Neeraj Monga suggested, “If they can have another quarter of not burning cash and can get the device (BB10 device) out in a few months, then investors are thinking, ‘Perhaps they have a chance to come back.” The stronger cash position a sign that the company should remain strong enough amid the march toward BlackBerry 10′s anticipated launch in early 2013.

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