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December 20, 2012

The Fiscal Cliff Dive for RIM? Fiscal Q3 2013 Earnings Say it was Close but Not Quite a Dive

Research in Motion (RIM) reported its fiscal Q3 2013 earnings today, and the company appears to us to more or less be on stable footing as it heads into its launch of BlackBerry 10 and its new devices in January 2013.

RIM did post a very modest small net gain - the result of a tax benefit. But this time around, it managed to lose just over one million subscribers, falling back to a total of roughly 79 million users. That’s not a trivial loss of subscribers, but the total subscriber base nevertheless remains substantial, leaving RIM with ample opportunity to sell it its new devices when they become available at the end of January 2013.

As for the numbers themselves, total revenue for fiscal Q3 2013 came in at $2.7 billion – a decline of 47 percent, which nonetheless matched the consensus analyst forecast. RIM says it shipped only 6.9 million BlackBerry smartphones and 255,000 PlayBook tablets in Q3. Net profit actually came in at $9 million or $0.017 per share, due to a tax break. Without the break, RIM says, it would have lost $114 million for the quarter or 22 cents per share.

The numbers managed to beat consensus analyst estimates that had forecast a loss of 35 cents per share.

As always, even a loss is a good thing if it beats estimates - in after-hours trading as we write at about 5:15 pm RIM's stock price is up $1.01, or about 7.15 percent, at $15.13. Anyone who bought in at the year's low of $6.22 per share is doing well.

Interestingly, the company reported that it now has $2.9 billion in cash in hand, a gain of $600 million from the prior quarter. Just as interesting - and completely unexpected is that gross margins in the quarter actually rose from the prior quarter’s 26 percent to 30.4 percent.

The consensus estimates anticipated gross margins of 27 percent.

The steep 47-percent decline in sales, at any other point in time, would have essentially spelled the end of RIM. But RIM, as the entire world now knows, is launching its new smartphones and the BlackBerry 10 operating system on January 30, 2013. The promise of that launch – which unfortunately manages to miss the entire 2012 holiday season – likely kept large numbers of users at bay. Why jump in during Q3 with new toys coming just down the road?

In its previous report for fiscal Q2 2013, the company managed to surprise a lot of the financial community and us as well, when it reported an unanticipated surge in subscribers to 80 million and a smaller than expected loss.

We are looking forward to the launch of all the "new stuff" as the launch day - which at one point seemed so far down the road as to appear like a hopeless endeavor for the company - finally arrives. The new devices and new operating system may have a measurable and positive impact on that report even though generally it will likely prove to be another quarter in which RIM reports a loss due to the launch coming at the end of the next quarter.

Thorsten Heins, RIM's CEO, was upbeat on the earnings call, and notes that he and his management team have been on an enterprise road show and are receiving excellent and highly positive feedback. Heins also made it clear that RIM's future rests on recapturing the enterprise.

We wish RIM well, and look forward to the next earnings call and report. The important thing then won't be any reported loss - all eyes will focus on initial sales of the new toys and the new operating system. RIM's future, however, rests entirely on the hardware. If the new devices deliver a huge user WOW, RIM should do well and begin to head towards areal recovery in 2013.

If the devices themselves disappoint, well…

Edited by Braden Becker

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