RIM on the rebound
Blackberry Messenger a sales driver in developing world
“Those numbers are very, very positive.”
VIC ALBOINI, JAGUAR FINANCIAL
Research In Motion Ltd.’s sales of the BlackBerry smartphone trounced estimates last quarter as it gained ground in emerging markets, signalling that the company may still have a future in the age of the iPhone.
Shares of RIM gained 8.1 per cent, or 56 cents, to close at $7.52 on the Toronto Stock Market on Friday.
RIM shares have risen the most in almost a year after the company sold 7.4 million smartphones, about 500,000 more than analysts had projected. RIM also posted a narrower loss for the period than estimated and increased its cash holdings. That impressed some of RIM’s biggest critics — including shareholder Vic Alboini, who has previously demanded a shakeup in management and strategy.
“Those numbers are very, very positive,” said Alboini, chairman of Toronto-based investment firm Jaguar Financial Corp. “RIM has taken a step up the ladder, and they can see where they’re going.”
The results show that RIM can gain customers in lowerincome markets such as Asia and Africa, even as it struggles to compete in the U.S. with Apple Inc.’s iPhone and devices running Google Inc.’s Android software.
The challenge now is a successful release of the BlackBerry 10 phone, the linchpin of the company’s comeback strategy.
“If they can have another quarter of not burning cash and can get the device out in a few months, then investors are thinking, ‘Perhaps they have a chance to come back,’ ” said Neeraj Monga, an analyst at Veritas Investment Research in Toronto who rates RIM a sell. It’s a remarkable comeback after RIM shares lost 68 per cent of their value over the past year.
RIM’s free BlackBerry Messenger program, known as BBM, has emerged as a selling point in developing countries, where data plans often cost more.
“It’s amazing when you go into those countries and you see how BBM is just kicking it,” chief executive officer Thorsten Heins said on a conference call, fresh from a tour through Asia, the Middle East and Africa. “I mean, it’s everywhere.”
RIM also did a better job conserving cash than some analysts predicted, curtailing operating expenses 7.9 per cent. Cash and investments grew to $2.3 billion by the end of last quarter, up from $2.2 billion three months earlier.
“The fact cash is not going to burn out in a quarter or two gives us an opportunity to see what BB10 is going to do,” Alboini said.
Revenue fell 31 per cent to $2.87 billion in the period, which ended Sept. 1, topping a projection of $2.47 billion.
While sales of the BlackBerry’s phone beat the 6.9 million predicted by analysts, they remain a fraction of Apple’s volume.
The latest iPhone, released earlier this month, sold five million units in a single weekend.
RIM’s subscriber base climbed to 80 million at the end of last quarter, up from 78 million.
Still, the new BlackBerry 10 lineup has been delayed at least a year, making it harder for the company to compete with the latest Apple and Android devices. At RIM’s software-developer conference this week in San Jose, Calif., Heins said the debut of BB10 is “a few short months away,” without being more specific.
The delays mean the BlackBerry 10 will miss the holiday season, when new Android devices and phones built on Microsoft Corp.’s Windows 8 software will hit the market.
RIM’s share of the global smartphone market dropped to 4.8 per cent in the second calendar quarter, from 12 per cent a year earlier, according to research firm IDC. Still, Heins said this week that BB10 will have a “clear shot” at being the world’s third-largest mobile operating system.
That would put it behind Android and Apple’s iOS, and ahead of Microsoft.
RIM posted a second-quarter net loss of $235 million, or 45 cents a share, compared with net income of $329 million, or 63 cents, a year earlier.
The company expects to have an operating loss this quarter and face “continued pressure” on its operating results for the remainder of the fiscal year, chief financial officer Brian Bidulka told analysts on the call.
He said RIM is using “aggressive pricing initiatives” to sustain the growth of its subscriber base.
“While we applaud the cost and balance sheet improvements, we’d note that selling devices below cost to boost its subscriber base is likely not a viable business solution longterm,” said William Power, an analyst at Robert W. Baird & Co. He left his rating unchanged at the equivalent of a sell.
Scotia Capital Inc.’s Gus Papageorgiou raised his rating to sector perform, and Kris Thompson, an analyst at National Bank Financial, boosted his rating to outperform.