Dare we ask? Yep, Depressing. That’s the only word that comes to mind after reading the RIM Q1 financial results press release and listening to the conference call.
As bad as the results were, I’m not going to write up a death certificate for RIM here. Yes, they are in real serious trouble, and no, it won’t be easy to climb back from the position they’re in, and another No, they did not inspire any confidence in anybody on that call.
They need serious help writing conference call scripts and being prepared for obvious questions from analysts. When the CFO can’t reply to a question without 10 thousand ums and uhs, people assume the worst. But are they dead?
Revenue was $2.8 billion for the quarter, down from a massive 33% from last quarter. Now thats bad as it is, but to get a real sense of how disappointing this is, the Street was expecting revenue of $3.1 billion. Making it a miss of 10%, ouch.
Earnings-wise, Wall Street expected a small loss (one penny per share), whereas in reality, RIM lost $0.37 per share, which amounts to $192 million.
RIM shipped only 7.8 million BlackBerry devices, compared to Wall Street expectations for 8.7 million. Again, that’s about a 10% shortfall. We know what you’re thinking, does this get any better? Well, not really.
One thing that is rather intriguing though, is that Thorsten Heins says that the BlackBerry subscriber base is still growing in all regions except the United States, which is interesting, unless of course he made an error in saying this, it certainly shows staying power for an older platform in most markets. But you have to wonder how long this can keep happening.
RIM is still cash flow positive. The media is already screwing this up, so it’s worth spending a moment to make sure this is crystal clear to our readers. RIM lost money when you look at the income statement. But a business’ actual cash flow is often very different from accounting profits or losses.
Looking at RIM’s cash flow statement, they generated about $710 million in cash flow from operations. This is a real number, and they are real dollars, however, almost $400 million of this came from a reduction in working capital. This is what to expect and what happens when you reduce inventory, push out payables and collect receivables, which is not sustainable, and it should not be considered true cash generation on any ongoing basis.
Cash is king
RIM has a business that can still bring in about $300 million per quarter right now, minus some capital spending that will still be required. Plus they’re implementing a cost cutting program to save another $1 billion per year (or $250 million per quarter). What this means is RIM can probably absorb a decline of another $500 million in cash flow from operations before starting to burn cash. The caveat is they need to execute on their restructuring plan for this to be true, and execution hasn’t been a strong point for this company lately.
For a company in RIM’s position, cash is absolutely critical here, so while the results are brutal (and the worst part is still to come), at least they have their cash.
The waiting is the hardest part
The worst part of RIMs troubles is what they’ve already told us about, Blackberry 10. BB10 is delayed until Q1 of calendar 2013. That is very bad for the company! Unfortunately though, it’s much of a surprise either. In the last week alone, those close to RIM also estimated it would have been impossible for RIM to bring Blackberry 10 this fall as RIM had previously anticipated.
This, of course, is why cash is so important. We’re starting to see people write about how RIM is the next Palm. Now, whilst in some cases you can see where they are coming from, minus the HP acquisition failure, its a pretty bad comparison to make. Palm died because of a cash problem, not Palm inside of HP, Palm the publicly traded company that ran out of cash while rolling out WebOS devices.
At the end of the day, as long as you launch a product that the market wants to buy, and you have the cash to bring it to market, you’ll be OK. Now don’t get us wrong, we’re in no way defending the company, RIM have been terrible this last few years, and its so easy to be disappointed and disgusted with the company, what’s hard though, is seeing light at the end of the tunnel, especially as a lot at RIM are starting to give up.
The picture is more grim. There’s more risk now because the delay gives competitors even more time to pull ahead of RIM, and to catch up in the few remaining areas where RIM excels. But a delay of BB10 doesn’t mean RIM is dead, does it?
What does a delay really mean?
Let’s look at a few examples, first of, Microsoft. To this day many respected industry pundits believe Microsoft will become a successful player in the market, and this is after years and years of horrible disappointment. It would seem crazy for some how anyone could say such a thing with a straight face, but Microsoft has cash, cash and financial means to support themselves in the market until they get things right.
And what about Apple? Apple went from a zero marketshare with no experience in the mobile industry, to quite frankly, delivering one the most outstanding breakthroughs that mobile technology had seen for years, it shuck up the entire mobile industry for godsake, it even changed Googles prior choices for Android completely at the time, if rumoured prototypes are to be believed of course. But of course, they had the cash to bring their product to market.
Now of course RIM is not Apple, and they don’t have as much cash as Microsoft either, but they do have the support of many developers, and they do have enough cash to bring BlackBerry 10 to market.
The big question is, or could be big problem is, will BlackBerry 10 be good enough. That is the main focus of what needs analysing. Now, don’t get me wrong, its great to hear that Thorsten Heins won’t let the product launch before its ready, which think would have made it more of a death blow to RIM than being late, being late to a party can be forgiven if you show up and rock the house. But if you show up with body odour, everyone walks away, so with a smelly thought in mind we have to ask ourselves, will BB10 be the OS that rocks the house, or the body odour that makes everyone walk away?