RIMM Misses on Lower Sales

BlackBerry-maker Research In Motion, Ltd., (RIMM) declared its second quarter 2012 financial results yesterday, after the closing bell. The company reported top and bottom line results well below the Zacks Consensus Estimate. Following the earnings release, shares of RIMM fell $5.74 (19.43%) to $23.80 in the after market trade in NYSE.

Total revenue in the reported quarter was $4,168 million, down 9.8% year over year and was also below the Zacks Consensus Estimate of $4,522 million. During quarter, Research In Motion shipped around 10.6 million BlackBerry smartphones and around 200,000 BlackBerry Playbook tablets.

Net income in the second quarter of fiscal 2012 was $329 million or 63 cents per share compared with a net income of $797 million or $1.46 per share in the prior-year quarter. Adjusted EPS (excluding cost optimization program expense) of 80 cents also missed the Zacks Consensus Estimate of 89 cents.

Gross margin in the reported quarter was 38.7% compared with 44.5% in the year-ago quarter and 43.9% in the previous quarter. Segment wise, Device shipment accounted for 73% of revenues, Services contributed 24% and the remaining 3% came from Software and Other revenue in the second quarter of fiscal 2012.

During the second quarter of fiscal 2012, Research In Motion generated approximately $971 million in cash from operations compared with $2,032 million in the prior-year quarter. At the end of the reported quarter, Research In Motion had $1,149 million in cash and investments and no outstanding debt on its balance sheet compared with approximately $2,867 million in cash and investments and no outstanding debt at the end of first quarter of fiscal 2012.

Future Financial Outlook

Management guided third quarter 2012 revenue between $5.3 billion – $5.6 billion. Gross margin is estimated to be 37%. Quarterly EPS is expected in the range of $1.20 – $1.40. For fiscal 2012, EPS is expected in the range of $5.25 – $6.00. According to management, BlackBerry smartphone shipments are expected to grow within the range of 13.5 million – 14.5 million.

Our Take

Booming smartphone markets and strong fundamentals, coupled with Research In Motion’s strong brand value and new release of BlackBerry 7 smartphone will act as positive catalysts for growth. Despite these positive factors, we expect stiff competition from Google Inc.’s (GOOG) Android-based smartphones and Apple Inc.’s (AAPL) iPhones to result in loss of market share.

Moreover, product delays, huge margin pressure, tepid response from newly launched tablets and lack of popular product launches will act as headwinds for the stock.

We, thus, maintain our long-term Neutral recommendation for Research In Motion Ltd. Currently, Research In Motion Ltd has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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