Our Two As Short Thesis on RIMM is Working

Our short thesis on Research in Motion (RIMM) has played out nicely with the shares down 11% the day after reporting another quarter that highlighted the intense competition RIMM faces from Apple and Andriod based phones, the Two A's that we coined spelled trouble for RIMM.

While EPS for the reported quarter was above expectations all other metrics that point to a deterioration in the business was weaker than expected.

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Device shipments of 11.2mn was below consensus of 11.4 and at the low end of company guidance of 11.2-11.8mn. Net subscriber additions of 4.9mn was below the 5mn consensus and at the low end of company guidance of 4.9-5.2mn. ASPs were not provided this time but most analysts believe it fell below $300 vs. the $305-$310 guidance. The company noted on the call that APSs were around $300 and was dragged down to some extent due to product mix and delays in shipments of higher ASP products. I do not believe them. ASPs are likely to continue to trend down from here. Reported revenue of $4.24bn was below the consensus of $4.35bn.

RIMM announced a $31mn share repurchase program and issued guidance for the second quarter as follows: EPS of $1.33-$1.40. Consensus was $1.32. Revenues of $4.4-$4.6bn. Consensus was $4.51bn. Net subscriber additions of 4.9-5.2mn.

We believe there is more downside for the shares from here. The Street remains bullish on the shares with about 35 buy ratings. One analyst, from RW Baird, was both wise and brave enough to reduce his rating to hold from buy after the earnings report. All others continue to support. He cited the Two As – Apple and Andriod as the reason.