RIMM Stock Talk

After the market closes this afternoon, RIM will publish its financial results for Q3 of its Fiscal 2012 year. For non-financial types, remember RIM's fiscal year ends in February.

It was only two weeks ago when RIM dropped its latest bomb. No, I'm not talking about the inventory write off. As I explained in my last article, the bigger issue is about the market demand for BlackBerry 7 devices.

RIM guided the Street to expect lower Q4 handset shipments versus the current quarter. I was surprised by this despite plenty of criticism about how I should have seen it coming. I thought BlackBerry 7 would be more than a very short term band-aid. I thought it would give RIM a few more months to get their act together on BBX (er ... make that BlackBerry 10).

In Q3, RIM sold only shipped 10.6 million handsets, but customers actually bought 13.7 million. The former number is about inventory balancing at carriers and distributors. The latter figure is what actually matters when evaluating the business. It tells us what customers are doing. But the sell-in number (handset shipments) should also be an indicator of future expectations, right?

Last quarter, RIM guided to 13.5 to 14.5 million shipments in Q3. And based on the December 2nd disaster-revealing press release, they hit that range. They sold about 14.1 million units into their sales channels. We don't know how many were actually sold to customers. We'll have to wait for tonight's call to find out.

However, they dropped a pretty huge hint that we won't be pleased. The told us that Q4 shipments will be lower than Q3 shipments. The only potential for this to turn into a good news story is if carriers are bleeding BlackBerry inventory to very thin levels in advance of QNX-powered handsets. But we've already seen the BlackBerry 10 roadmap here on CrackBerry and it doesn't look like there are enough devices coming fast enough to justify bleeding channel inventory. So it must mean that sales are just not very strong.

Let's assume that RIM actually sold something like 14 million devices to end customers in Q3. For comparison, Apple shipped 17.1 million iPhones in its latest quarter. Oh, and they also shipped 11.2 million iPads. Those are shipment numbers, not sell-through numbers, but they still paint a very clear picture. Apple is whopping RIM's ass at the high end.

As part of RIM's early December warning they also told us Q3 revenue (that's the quarter they'll be reporting tonight, remember) will be lighter than expected despite meeting shipment guidance. Why? Because of "mix". This means less sales of high end devices and more sales of lower-end Curves.

At the low end of the market RIM has been really successful. Especially in places like Indonesia, Latin America, and Africa. BBM is a big part of this success. But Android activations are around 550,000 per day (according to Google). That's almost 50 million devices per quarter compared to RIM's 14 million and Apple's 17 million.

The battle for the low end of the market is only getting more difficult, even in the United States. Amazon's Kindle Fire is an Android tablet sold pretty much at cost. Amazon has a powerful media and e-commerce strategy to justify selling devices at break-even (or a slight loss). RIM doesn't. And most experts expect Amazon to enter the smartphone space in 2012. Does RIM even have a strategy to deal with this? Or are they in denial as they were several years ago when the iPhone came out?

Tonight's conference call should be interesting. We're going to be live blogging the call, so join us. RIM has an unbelievable number of challenges facing it, and investors need to hear something better than "Just wait and see". In fact, anything other than concrete details coming out of the mouth of Jim Balsillie are likely to ignored, if not ridiculed by frustrated investors and analysts. And that's not a criticism - it's simply the truth with respect to how the investor community seems to feel about his delivery on promises.

We need to hear specifics about when BlackBerry 10 will hit the market. RIM has repeatedly said early 2012. If that's true, then we should be seeing devices launch prior to the next conference call in March 2012. So if RIM won't talk about details on tonight's call, we have to assume things are again falling behind schedule.

I think there is also a huge question around the company's strategy. Is it enough to just be a good hardware vendor with a slick OS? Or do you need a more power with a media strategy (like Apple) and e-commerce (like Amazon)?

But that's a topic for another article.

See you on the Q3 results live blog tonight.

Disclosures: I own shares of RIM, Apple and Google.

Chris Umiastowski is the co-host of Stock Talk, a Mobile Nations podcast. You can follow Chris on twitter at @cumiastowski and read more posts by Chris at ChrisUmiastowski.com.