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Another analyst expecting RIM to miss Q3 numbers: A crazy guess or RIM breaking from tradition?

RIM logo
By Chris Umiastowski on 14 Mar 2012 01:41 pm EDT
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Reading through the news this morning I noticed this story from the Globe and Mail. The summary version of the story is that Bernstein analyst Pierre Ferragu thinks RIM will miss its Q3 financial guidance.

Remember that RIM, like many other public companies, issues quarterly guidance when they report financial results. So along with Q3 results they issued expectations for Q4. When a company is going to miss numbers, it is very common to issue a press release updating the guidance. Wall Street lingo for this is an "earnings warning". So you'll hear people say, "XYZ corp warned last night".

I have not read the Bernstein report yet. If I get my hands on it and need to update this article, I will. But based on the Globe's reporting, it seems Ferragu thinks RIM will deliver only $4.3 billion in revenue. Guidance was $4.6 to $4.9 billion, so $4.3 would certainly be a miss. Note that the Globe story says guidance was "almost $5 billion". Come on guys - if you're going to be so specific about the analyst's estimate and then be vague (and inaccurate) about the guidance range, it's not exactly fair reporting, is it?

For earnings, Ferragu estimates RIM will earn $0.72 per share. RIM's guidance was $0.80 to $0.95 per share. Quite a bit higher.

What I'm wondering is why Wall Street seems to be so convinced that RIM will miss its earnings when they haven't warned.

Yes folks ... it's true. RIM has not issued an earnings warning for Q4. The quarter ended on March 3rd. They report on March 29th.

I've covered this company for over a decade. In that time they've only ever warned a few times. They've also press released the occasional earnings surprise. But for the most part, RIM has a very good track record of coming in within its guidance range for earnings and revenue.

Please don't misunderstand me. RIM does not have a good track record (lately) for meeting longer-term goals. Remember when they started out this fiscal year and said they'd earn at least $7.50 per share for the full year. It was a rare situation for RIM to provide full year guidance, and turned out to be a disaster. They had to cut this guidance repeatedly throughout the year.

Now we have a few Wall Street analysts who are saying RIM will miss Q4. I am not saying they're wrong. However, I am saying that for them to be right it has to represent an anomaly in RIM's historical reporting. For the few times in history that RIM has missed quarterly guidance, it issued earnings warnings either well before the quarter ended, or very shortly after.

Just look at last quarter as a perfect example. The quarter ended November 28th. RIM put out a press release on December 2nd disclosing a huge inventory write-down on Playbook inventory. That's within a week of the quarter end.

Today it is March 14th. RIM's quarter ended 11 days ago. The chances of them issuing an earnings warning seem remote at this point, based on history.

Reader comments

Another analyst expecting RIM to miss Q3 numbers: A crazy guess or RIM breaking from tradition?

41 Comments

Wow that's awesome. I took my playbook to work and now 7 other coworkers have it. It's okay rim I don't need to make money for promoting the playbook. I just want to see rim succeed. TEAM RIM!

Likewise, as the IT manager I pushed as many HUP's through as I could this quarter ;)

About to push through 3 X 9900's right now. Give RIM a helping hand starting out Q2.

My wife and I both have playbooks, both bought at full price, each have a 9810 and a 9900 to pair with them.

My Mom and partner both have playbooks bought on discount, and she also got a 9780 after purchasing the Playbook to replace her flip phone / Ipod touch combo. They are now BB converts....

Two other guys in my office bought playbooks, and another friend of ours did too. Only one of them have a BB phone, but now all of them are considering phones to pair.

At least in my small world, RIM is still very relevant, and total tablet purchases def goes to Playbook, which seams to be stimulating future BB phone purchase interest.

Hey chris

I think they would have guided down by now. Also think jim/mike lowered the bar on their last call so the numbers could reached this quarter. It will be interesting to see if Thor sets full year guidance in the call. Set expectations low

I think it all starts in earnest at BB world in May. All the analysts will be there, first real look at bb10. Thor will set the new path forward for rimm.

What they need to do is keep pushing bb7 for the next 2 quarters. Hope international will keep volumes up

Even if RIM meets guidances, these same analysts will come back and say "well, they'll miss next quarter." It's been the same story for three years and RIM is still profitable and growing their user base.

Same story for the last six or seven years. RIM has successfully grown in the face of negative analyst sentiment for a very long time! This is really nothing new AT ALL.

Sent from my BlackBerry Playbook

I do not believe that RIMM makes any money from PlayBook sales having wrote down the value to the discounted selling prices seen. These analysts have a number of back door channels they use to come to these conclusions. Bloomberg reported today huge short interest in RIMM. If Chris is correct and they make their numbers, could result in a nice rally, the market really is invested in a miss.

There is major shorts on RIM as of now. But yea I agree, RIM has come forward in the past with revisions prior to the final. Whats changed? Certainly not RIM (everyone seems to point that out). And the fact no one officially is stating otherwise, there is no reason to believe RIM will be far from there mark. Could they be making up the revenue in other new channels? Everyone is focused on the handset component, but with the other companies now part of RIM they could be generating free cash flows based on those businesses. AKA making there numbers. It certainly would be nice for them to hit the mark and issue a big STFU to all these analysts.

The cynic in me believes that these analysts hold short positions. That would make it doubly sweet if RIM makes its numbers and the share price rises.

RIM needs to bring a BBX device to market soon! Pick one NEW feature on it to be outstanding and perfect it. Waiting until Q3/Q4 to start pushing those devices out to market seems like a miss to me.

The BB10 phones need to be a homerun at launch. If that means Q4, so be it. The absolute worst thing that RIM could do right now is rush another incomplete product to market like they did with the playbook.

With that said, I still think the playbook was a good idea. It gave RIM a way to develop BB10 through an existing device in the market, and develop an ecosystem (even if it is a weak one) that can be directly transferred to BB10.

If the stock is trading at $13/share now, where will it be by Q4?! They need to push out a polished product; however they need to be 'all hands on deck' over at RIM to get a polished product to market sooner. It will take an investment infusion for them to cut down the time while ensuring the quality isn't compromised. Either way, waiting until Q4 for a new device means that it needs to be extremely well received at launch; undisputable perfection of a BB product. They need to tap into something that makes lives easier that no product is offering and set the standard at delivery. That's a tall order and a very steep hill to climb.

RIM IM HERE...I STAY WITH YOU BUT PLEASE SHOW NOW THAT YOU STILL A BIG PLAYER...MAYBE YOU NEED ANDROID MARKET..AND MAYBE SAME MAIL SERVER SAME PLAYBOOK.... IF I HOLD AN BLACKBERRY IN MY HAND, I FEEL I HAVE A SMARTPHONE OF 5 STAR STYLE IN MAY HAND... DESIGN WORM AND STYLISH...THIS NAME BLACKBERRY AND LOGO FANTASTIC... YOU NEED A GOOD APP AMRKET, A FRONT CAMERA, AND VERY FAST CPU..AND BEST BATTERY LIFE EVER..SAME BEFORE BOLD 9000 ETC.... SWITZERLAND IS IPHONE MANIACS..BUT THERE IS A CHANCE...I MEAN...YOU ARE THE FIRST HAVE PUSH MAIL..AND SEE NOW..ALL COPY BLACKBERRY, YOU HAVE FIRST MESSEMGER AND SEE NOW ALL DO THE SAME... SO BLACKBERRY IS A TREND MAKER...YOU NEED BETTER MARKETING AND YOUNG AGENCY FOR COMMERCIALS ON TV, RADIO, ETC....ALL OVER THE WORLD YOU HAVE TO SHOW YOUR GREAT NAME BLACKBERRY....AND PLEASE DONT CHANGE ALLWAYS ICONS...TO ME SEAMS YOU HAVE TO MUTCH PEOPLE IN RIM THEY LIKE TO DESIGN ICONS...FOR ME PERCISON ZEN WAS CLEAR AND UNIC....ITS NOT ABOUT THE ICONS ITS ABOUT THE SPEED ETC... BATTERY AGAIN AND AGAIN ..SO SORRY FOR MY BAD ENGLISH...

This guy Chris U. is too smart to be a lowly Market Analyst/Editor for a CrackBerry website . He must've worked on Wall Street , made enough money to live , either quit or was let go from a major company , then said to hell with it , I'll take it easy and work here . . . He knows too much ! Thanks for breaking it down to where I could understand it . We are truly lucky to have you .

@digicon

LOL! Chris U. is not a "lowly" market analyst for Crackberry.
From older posts, it is made apparent that he is a specialist in corporate financials that was previously stationed in France. He has deep experience with analysis of Blackberry Corporate and has joined (or rejoined) the Crackberry community now that he has returned to North America. He's more of a "contributing writer" (and BB enthusiast).
He always adds proper perspective and balance to the stock-tied rumors and insanity that have haunted RIM in recent months. Crackberry Kevin seems to have known him for a long time.
You are right, we are lucky to have someone like Chris U. around to explain things in an accurate and RATIONAL way.

I also believe RIM is getting shorted to death by the hedge funds on Wall Street. The problem is there isn't enough positive news to kill off all the bears. Once RIM exceeds expectations, all the bears will go away. RIM needs to go with a LOWER guidance and exceed expectations, not overpromise and underdeliver like the past few quarters. Once they have one or two good quarters where they do well, all the bears will die and their stocks won't be in the shitter anymore.

I hope they start working on the BB 10 ecosystem now, way before it is released, so when the BB 10 phones come out, they'll have a robust app ecosystem and full features.

New CEO, inventory write down, hire PR company. They are all for one purpose. To create a new image for rim. Accounting game is zero sum game too. They took a huge hit from the Playbook last quarter, therefore i would not worry about the revenue. For the net income, I don't think that they will miss that too. I think that they posted all the bad news last quarter, and it will make the new CEO look good in order to improve their public image.

If they still miss the earning, they really should hire the new PR and MCO.

RIM need to get BB10 perfect before release and it needs to have some killer quantum leap functionality that REALLY makes people pay attention. At the moment Apple only needs to pass wind and the public will queue up in their droves for a smell, so RIM seriously needs to hit not just one home run, but two in a row. The first being BB10 phones and the second being a major update to the Playbook that takes it beyond where any other tablet is.

Some people have suggested giving away Playbooks with purchases of BB phones. I think this would be an awesome launch strategy for BB10. Even if it costs RIM a pile of cash, it will make the world sit up and pay attention. They are already seeing traction due to the fact that there are now a lot more Playbooks in circulation. Other people see those devices and if they like what they see, things can go viral.

Only last week I was sat with my financial advisor. He saw my Playbook and wanted to know what I thought. I gave him a quick demonstration and guess what? Two days later he bought one. Hopefully, he too will become an advocate.

The reason so many people are buying iPads is that so many people are exposed to them. They see someone else with one and they want one. RIM need to make sure that the whole QNX, BB10, Playbook thing is what people are talking about come Q4. And they need to get it totally right. Not 90% right, but 100% perfect. That is the challenge!

What happened with RIM is a mystery.

The stock hits $70 dollars in Feb and loses $25 dollars in about 60 days. Now remember there's no sign of trouble during this time period. The previous quarter was their best ever. The playbook is launched and beats analyst estimate (500000) but yet the market is already shorting this thing like theres no tomorrow.

The stock breaks major support in the spring/summer and continues lower. At this time they are approached by both amazon and M$/nokia. Here's the really funny part. If rim felt that they were under attack (which is obvious both now and then) why wasn't the story of them being takeover/purchase leaked. They story is leaked in December, the day rims stock hits its low. If the story had of come out sooner RIM would have saved billions in share holder value and the shorts would have been deservably burned.

Shareholders meeting in July. Rims ceos say they're going to buyback 1 billion worth of shares. They never do it.

Dec 2 rim guides down(stock gets hit that day hard) and then dec15 q earnings the stock gets hit again. So a bad quarter costs investors twice. To add to the disappointment amazon announces on the same day that they are selling a million kid fires a week.

Now I'm prone to conspiracy theories but c'mon it doesn't add up no matter how you measure it. Something is wrong.

You are not delusional and are indeed dead on. There is likely a group of hedge funds that are in league to short RIM. Luckily, the new RIM board member, Prem Watsa, has dealt with this situation before. He did jump in too early by doubling his stake in RIM. What Prem and RIM should do is plan to buy lots of stock when they announce BB 10 so that along with a market rally, all the bears will be slain. This would only work if BB 10 is a big hit. Along with RIM and Prem, the bulls could put the bears out of their misery and end the stock's slide.

Now it looks like they're attacking Prem and his company fairfax.

There was a ny times article about a 400 miilion tax break Fairfax financial received.

This is the good part...

While the Odyssey Re deal has apparently not met I.R.S. opposition, it is the subject of a complaint by one of the hedge funds sued by Fairfax to the I.R.S. Whistleblower Office. It is not clear if the office has seen the evidence produced in the hedge fund lawsuit.

Now this happened in 03 to 06 and the nyt story was published Saturday and then again today. This is the same type of media treatment that rim gets.

This is obviously a stressful situation for shareholders (disclosure: I hold 200 shares of RIM).

If RIM has not warned yet then it's absolutely crucial that they meet their Q3 guidance. The most valuable commodity that RIM has lost isn't its market cap, but its credibility. Without that they truly ARE valuless.

In fact, with the doubts cast by both this report and the Jeffries report a couple of weeks ago, RIM is in a position where they should probably restate even in the event they'll meet guidance in the low range (other companies have been known to do this).

Personally, I have a little spark of faith that the ship has been righted and the bleeding has been staunched. Since the event I refer to as the "reset" last fall, the company has actually done a good job of keeping its promises. I don't know if that new reliability extends to the CFO's office, but I might just double down.

I can live with an earnings report that has some cause for concern, as long as the overall story is one of recovery, and I can see a few scenarios playing out here where that might happen.

This is it.

If they miss, it will be near impossible to recover from the onslaught that will insue. Not only will they have lost most long side investors who have been desperately holding on, but consumers will follow shortly after believing that the end is near. The launch of the 3g playbook will be poorly received again and the media will continue to destroy whats left.

Just my opinion and I don't want to scare anyone or be overly pessimistic because I'm not. I believe rim will have a quarter that will surprise to the upside and stem the critics and send the analyst running for excuses. This will set a positive tone for the 3g PB launch and mobile fusion.

If rim has anything left in them, it should show up here.

I don't think there will be any surprise for this quarter. They will likely come in at the low-end range of guidance.

Attitudes will not change until they get the BB10 phones out.

If they want a successful anything they must stop the bleeding leading up to a launch otherwise it will fail undoubtedly.

Chris,

I agree with your position. If RIM had bad news, it would make sense for Mr. Heins to report it early so he could distance himself from the results and present it more reflective of the efforts of Mr. Lazaridis and Mr. Balsillie.

Waiting until earnings or trying to drop it on a Friday after-hours would paint him as "more of the same". So let's see if the old axiom No news is good news still applies.

Chris, I look forward to all your updates.

Could you, or anyone else reading this thread, explain how last quarter's write-down on the PlayBook inventory and this quarter's PlayBook sales will impact earnings? I mean, do sales of all the PlayBooks included in the write-down go directly to the earnings column?
If RIM sold a million PB's in Q4, that would mean roughly $200 million in revenue, taking into account the three different prices as well as the retailer's percentage. If all this money now goes to earnings, that would mean about 37 cents per share, or close to half the low end of guidance.
Obviously, I'm not an accountant! It may well be that the only benefit of the write-down was the tax-break, which I believe amounted to approx. $130 million.

I guess that you have to write down the inventory to equal net cost value. It means that it will help the top line but it won't help the bottom line.