RIM Earnings Preview: Hoping For Less-Bad

Research In Motion Limited (NASDAQ: RIMM) is set to report earnings after the close of trading on Thursday and the expectations must still be dire if you just look at the stock price action of late. It was just on Monday that RIM shares were hitting what was a decade low. The good news is that it now appears that the number of subscribers might not have declined as so many analysts were expecting. The bad news is that this was said to be due to emerging market growth and not exactly from the BRIC nations.

Another positive was that Goldman Sachs recently increased its estimates slightly. The market share loss has continued to be dismal and the Blackberry 10 operating system delays have put the company in a “make or break” situation. It is sad to say, but RIM will be the next Palm if the operating system and new smartphones do not do well. With the delays now pushing it out until after the 2012 holiday season, it just doesn’t make any logical sense that new smartphone buyers between now and then will suddenly decide to switch to the new Blackberry at the start of next year and that implies that the new O/S is actually a late 2013 story.

In a “value” analysis the cash balance, the number of subscribers still in the base, and the units shipped just are not going to matter now. At least they won’t matter with the exception being if the drop is far less than what Wall Street is expecting.

The growing competition from Apple Inc. (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG) have just overwhelmed the company’s market share in smartphones and RIm is now losing money and is expected to keep losing money. RIM shares hit a 52-week low (also a multi-year low) of $6.22 on Monday and the short interest is still incredibly high at 82.6 million shares and this was a record on the days to cover ratio of almost 7.3 days.

Thomson Reuters has estimates of -$0.47 EPS and $2.49 billion in sales. That is down from $0.80 EPS a year ago and the revenue decline is a whopping 40% from a year ago. For the following quarter which we are already in, RIM is expected to post earnings of -$0.42 EPS on $2.31 billion in sales.

If you monitor stock options trading, the open interest for the weekly September puts is noticeably larger than that of the call option open interest. That is a contrast from the October monthly options showing that the calls are more exposed than the puts.

To put the present situation in perspective, RIM shares have not been this low all the way back to September of 2003. With shares currently around $7.00 after having traded as low as $6.22 this week, RIM has to live up to some slightly less bad expectations today with earnings. If not, let’s just say that new multi-year lows are coming again. RIM is one of our ten brands that are likely to disappear in 2013.

JON C. OGG