RIM Q2 Results: BlackBerry Maker Beats Analysts' Expectations, But Still Posts Loss

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RIM Q2 EARNINGS
Thorsten Heins, President and CEO of Research in Motion, gestures during a demonstration of the new BlackBerry 10 at the BlackBerry Jam Americas conference in San Jose, Calif., Tuesday, Sept. 25, 2012. RIM says it lost of US$235 million in the second quarter, beating analyst expectations, as revenue plunged compared with a year ago. (AP Photo/Eric Risberg) | AP

TORONTO -- Even though it posted another round of losses and weakened revenue, BlackBerry-maker Research In Motion delivered a surprisingly positive second-quarter earnings report on Thursday that wasn't as bad as many analysts expected.

The technology company, which is based in Waterloo, Ont. and reports in U.S. dollars, posted a quarterly loss of US$235 million or 45 cents per diluted share.

The results compare with a profit of $329 million or 63 cents per share a year ago.

For many companies these results would be dismal, but for RIM -- which has been struggling with numerous obstacles including the delay of its new smartphones and BlackBerry 10 operating system and massive layoffs -- the fact that its bad news wasn't worse proved encouraging to some.

Much of the optimism was gleaned from adjusted earnings per share, which filter out one-time costs like expenses related to job reductions and cost cuts.

RIM's adjusted loss was $142 million or 27 cents per share, better than analyst expectations of a loss of 47 cents per share, according to a poll from Bloomberg.

Despite impressing investors, RIM still has many challenges ahead. Its revenues were notably weaker, down 31 per cent to $2.87 billion from $4.17 billion a year ago.

RIM said it shipped about 7.4 million BlackBerrys during the quarter, down from 7.8 million in the first quarter, showing that interest in its existing models is starting to wane.

However, Jeffries analyst Peter Misek said he was surprised that RIM managed to keep so many customers interested.

"Management sold more Blackberries than we thought,'' he noted in an emailed response.

RIM also shipped more PlayBook tablets to stores in the quarter, at 260,000 units compared to 130,000 in the first quarter.

The results show that RIM is making some progress as it moves towards to its next generation of BlackBerry smartphones and completes its cost reduction plan, said chief executive Thorsten Heins.

"While this transition is challenging and the competitive environment tough, we have made steady progress in these areas in this quarter,'' Heins said in a conference call.

"Our teams are very focused on maintaining a strong financial position as we go through this transition.''

Shares in RIM were up 19 per cent to US$8.54 in after-hours trading in New York at 6:40 p.m. ET. The company's shares rose eight cents to close at $6.96 at the Toronto Stock Exchange on Thursday.

Other encouraging signs came from RIM's subscriber count, which grew to 80 million at the end of the quarter, an increase of about two million subscribers from the previous three months.

Cash reserves grew by $100 million to $2.3 billion as of Sept. 1. Analysts had been concerned that the company would have to dip into its savings to survive during this period before its new product launch.

"Against low expectations, management did an excellent job in protecting and actually growing its two key strategic assets: its cash pile and its subscriber base,'' said analyst Kevin Smithen of Macquarie Capital in an emailed comment.

RIM still faces pressure in its cash flow from operations, which was down significantly to about $432 million in the quarter, compared to $710 million in the first quarter.

The company has made significant reductions across its operations, closing facilities, severing ties with certain manufacturers and announcing plans to lay off 5,000 workers across its global operations in an effort to save $1 billion in its fiscal year, which ends in February 2013.

"I'm particularly pleased with the progress we have already made as we approach the halfway point of our fiscal year,'' Heins said.

"These things are essential as the company completes the transition to BlackBerry 10. We are in the midst of building a leaner and stronger organization.''

The company's board is still in the midst of a review of its strategic options, which have kept the doors open to everything from a sale of certain assets to various partnerships with other companies.

"I have not set a specific timeline for the completion of the process, however I do want to be clear that the board is taking this review very seriously and with the appropriate sense of timeliness needed at this point in our company's evolution,'' Heins said.

In its outlook, RIM said it expects there will be continued pressure on operating results for the remainder of its financial year.

"We continue to see a very aggressive environment in terms of pricing and we expect this will continue on a global scale for the foreseeable future,'' Heins said.

RIM anticipates it will report an operating loss in the third quarter as it works through the transition.

What was missing from RIM's earnings report was any further detail on when the company would launch its new BlackBerry phones and operating system, expected sometime early next year.

The new devices and operating system are seen as the key to the company's success after losing much of its market share to Apple's iPhone and the Samsung Galaxy S3.

So far consumers haven't seen the new BlackBerry devices, but on Thursday footage purported to be of the touch screen and keyboard devices briefly appeared on video-sharing website Vimeo before quickly being pulled down.

A spokesman for RIM would not immediately comment on the video.

Heins has said that the first wave of new devices would be targeted to higher-end users, but on Thursday he noted that he expects the company to start developing a model for ``mid-tier'' customers this fall.

He said the company is also discussing a lower-priced model which will be created for ``entry level'' customers who tend to chase very low-priced options.

"We feel very strongly about BlackBerry 7 in that segment, so you might see even a new product based on BlackBerry 10 in the entry level coming out next year,'' he said.

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