The Wreckage That Is RIM
You know that feeling when you're on the highway and you pass by an accident. Everyone is thankfully unscathed from the crash, but you can't help but marvel at the tangled steel and shattered glass caused by the sheer might of physics.
That's the feeling I get every single quarter when Research In Motion (NAS: RIMM) releases its earnings results. Except, in the case of the BlackBerry maker, the only things entangled are Jim Balsillie and Mike Lazaridis in their sharing of both co-CEO and co-chairman roles. Investors' hopes and dreams are all that get shattered, rather than windshields, and the might responsible for the wreckage belongs to Apple (NAS: AAPL) iOS and Google (NAS: GOOG) Android.
What were you expecting?
A couple of weeks ago, the company gave us a sneak peek at what to expect this quarter, so expectations should have been tempered. But that didn't stop shares from selling off after hours to prices not seen in nearly eight years. Early 2004 was the last time RIM shares were near $14.
Third-quarter revenue came in at $5.2 billion, down 6% year over year. The company shipped 14.1 million BlackBerry smartphones and 150,000 PlayBook tablets. The total BlackBerry subscriber base has grown to almost 75 million. Adjusted net income was $667 million, or $1.27 per diluted share.
This is mostly in line with the updated guidance provided just two weeks ago. RIM had projected sales "slightly lower" than its previously guided range of $5.3 billion to $5.6 billion, with diluted non-GAAP EPS "at the low to mid point of the $1.20-$1.40 per share range it previously guided."
Going forward, fourth-quarter sales are expected between $4.6 billion and $4.9 billion, with smartphone shipments in the range of 11 million to 12 million units -- a downtick during the busy holiday shopping season. Fourth-quarter EPS is pegged between $0.80 and $0.95.
That part's not important ... is it?
When getting to adjusted non-GAAP profit, the company is choosing to exclude the charges it took for its stagnant PlayBook inventory. While it's common practice for companies to exclude certain items, we're talking about a massive adjustment. The company took $356 million in after-tax charges ($485 million pre-tax) because no one wants the things. That means that out of its adjusted profit of $667 million, more than half of that is really getting wiped out from the inventory provisions alone. The company's actual GAAP net income is just $265 million, a 71% drop from last year's GAAP results.
The PlayBook takes a page out of the TouchPad's playbook
In the past three quarters since the PlayBook's launch, it has "shipped" roughly 500,000, then 200,000, and now 150,000 units each quarter. Those shrinking numbers should be evidence to the un-dynamic duo of Balsillie and Lazaridis that users value things like native email, contacts, and calendar apps. Maybe even some of the people who ordered PlayBooks got a little confused and actually meant to order Amazon.com (NAS: AMZN) Kindle Fires, since they look identical, after all.
There were reports that retailer Best Buy (NYS: BBY) had sold out of PlayBooks due to massive price cuts, bringing the entry price tag down to Kindle Fire territory at $199. Although it didn't have to go as far down as Hewlett-Packard's (NYS: HPQ) $99 TouchPad frenzy, it might have given a glimpse of hope that the tablets were at least moving. Unfortunately, the figures disprove that as wishful thinking.
The softer side
Just when I actually give RIM a little bit of credit for doing something right by leveraging one of its legitimate strengths, BlackBerry Enterprise Server security technology, its service and software segments ticked down from 27% of sales last quarter to 21%.
Everything is riding on the next-generation BlackBerry 10 operating system, which was renamed after losing the BBX name. BlackBerry 10 is even getting delayed until late 2012, so there's no reason to think RIM can pull off the turnaround of the century. At this rate, there will soon be an opening for the No. 3 spot in the mobile wars, and interested applicants should respond quickly, or else the position is likely to be filled.
Who's driving tonight?
The most mind-boggling aspect of RIM's predicament is how the status quo has been allowed to continue for so long. Management is clearly inept and needs to be replaced. Shareholders have been trying but thus far have been unsuccessful.
This is why you always need a designated driver, and if it turns out that person is a little too inebriated to get everyone home safely, you kick them out of the driver's seat or subdue them if they're being unruly. Just hope they're not so far gone that they chew through their restraints.
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At the time this article was published Fool contributor Evan Niu owns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google, Apple, Amazon.com, Best Buy, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft, writing covered calls in Best Buy, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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