RIM Made 2 Smart Decisions
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Research in Motion (NASDAQ: BBRY) has been on quite the ride since releasing earnings. The company surprised many by increasing their cash stockpile, and increased their subscribers. While these positives were directly related to the recent pop in the stock price, there were actually two other smart moves the company made that I haven't heard mentioned. Let's look at the company's results and at the information from their conference call. I'll show you the challenges the company still faces, and point out these two smart moves as well.
RIM Customers Are Frustrated And Competition Is Fierce:
Unless you live under a rock, you probably know that the smartphone industry is highly competitive and that if your name isn't Apple (NASDAQ: AAPL) or Google (NASDAQ: GOOG) that you are way behind. With the upcoming release of Microsoft Windows 8, competition is expected to get even tougher going forward. I've written in the past that the maker of BlackBerry smartphones needed to get its act together. In their last earnings report, they admitted that BlackBerry 10 wouldn't release until the first quarter of 2013, which angered even the staunchest of supporters. In a comment from Crackberry.com a user said, “The delay to fall 2012 was supposed to give RIM the time to make it (BB10) perfect. I've been disappointed too many times...I'm moving on.”
When even die hard BlackBerry fans are angry with the company, it's time to make some changes. While RIM is working on BB10, Apple has released iOS 6 and Android's Jelly Bean has begun running on multiple devices. I asked the question with my last post, what will BB10 offer that's different from what is already on the market? RIM tried to answer this question and more between the company's earnings release and conference call.
I have to say, I don't like it when struggling companies make quarter to quarter comparisons to try and make their business look better. I have one suggestion for both RIM and their troubled competitor Nokia (NYSE: NOK), don't sugarcoat what's going on. Use useful year-over-year comparisons and then tell your investors what you are doing to make things different going forward. On this basis, RIM reported revenue down 31.07%. The company also reported that subscribers grew to 80 million, and that 7.4 million BlackBerry smartphones shipped during the quarter.
While this number wasn't terrible, let me give some perspective. Apple just sold a reported 5 million iPhone 5 devices in a single weekend. According to reports, Android activates about 700,000 smartphones per day. This means that the category leader activates as many Android phones in 11 days as RIM shipped in the last 3 months. Even Nokia who many people link to RIM as the “in trouble” smartphone makers reportedly sells “260,000 smartphones daily”. Now granted these results from Nokia I'm sure include their own OS as well as Windows Phone, but the point is multiple competitors are outperforming BlackBerry when it comes to unit sales. Just to continue with the company's challenges, gross margin plunged from 38.68% last year to 26% this year. The company sees this margin compression continuing as they do everything they can to build their user base.
The Company's Financials Aren't That Bad:
Though RIM is clearly struggling against the bigger players in the smartphone game, the company is both cash flow positive and growing its cash balance. In the current quarter, free cash flow was $345 million due in part to lower capital expenditures. In addition, cash and cash equivalents increased from $2.2 billion to $2.3 billion. Since the company is essentially pushing BlackBerry 7 while waiting for BB10, keeping their cash balance stable is important. I know that investors were surprised by the company's cash flow and increase in cash on the balance sheet, but if the company executes on BB10 this could just be the beginning of good news.
Interesting News From The Conference Call:
The company reaffirmed that BB10 will release in the first quarter of 2013. They also said on the conference call that their CORE (expense reduction) program is on track to achieve $1 billion in savings by the end of 2013. While those comments were pretty much expected, there were a few positives mentioned about BB10 that stuck out. First, the company explained that in BB10 the BlackBerry Hub will integrate social networking conversations. While I'm aware that this is already being done in the market, it's nice to see RIM realizing that social networking is something that even their business centric user base wants to engage in. The company's BlackBerry Balance is something unique in that it will “separate personal and corporate content”. In theory, this will allow the user to work and play on the same phone, and make it easier for their IT department to know what is business critical information and what is not.
The two items that impressed me the most were the company's ongoing Strategic Review and their BB10 smartphone lineup. The Strategic Review is ongoing, and includes the options of a partnership or licensing of BlackBerry 10 to other handset manufacturers. The CEO Thorsten Heins seems to be committed to continuing this review and the company's willingness to open up their closed circle of handsets and software can only be a good thing. The second big positive I saw is, the company said they, “really streamlined our portfolio in BlackBerry 10 with just QWERTY and touchscreen phones.” Nothing could be better news as far as I'm concerned. This has been one of the biggest problems for RIM in the past. The company produces a seemingly endless array of phones that are nearly indistinguishable from each other. Too many similar choices just serves to confuse the customer and lessen the likelihood of them going with a BlackBerry.
I'll admit that last quarter I pretty much wrote off RIM as dead in the water. The delay of BB10 and the anger from users seemed to spell doom for the company. There is no doubt the road ahead is tough. However, if the company can keep things simple and deliver on BB10, there is a chance that the stock's pop is just the beginning. Analysts expect losses from RIM for the next two years. Depending on how BB10 is received, they could be in for a big surprise. For diehard BlackBerry fans, you couldn't ask for better news.
Compare and Contrast
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