Research in Motion 1Q Preview

Research in Motion is scheduled to release 1Q earnings Thursday June 24 after the market close. Consensus calls for revenues of $4.35bn and EPS of $1.34. The company guided for revenues in the range of $4.25-$4.45bn and EPS in the range of $1.31-$1.38. Device shipments for the quarter was guided to 11.2-11.8mn, ASP to $305-$310, and net sub adds to 4.9-5.2mn. Consensus expects 11.4mn, $305, and 5mn, respectively. Gross margins are expected to come in at 44.3%. Second quarter consensus is for $4.5bn in revenues and EPS of $1.30 with device shipments, ASP, and sub adds of 11.9mn, $303, and 5mn, respectively.

Given the intense level of competition RIMM faces, particularly in the North American market, all key metrics such as revenues, shipments, ASPs, and sub adds are likely to be pressured with the impact mitigated on the bottom line due to cost cuts. Hence, earnings should likely come within guidance.

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I previously wrote about RIMM in a post titled "Two A's Spell Trouble for RIMM. Another Palm in the Making", seen here. I stated that competition from Apple and Andriod based phones are likely to have a significant negative impact on RIMM's sales and pricing pressures should continue to negatively impact ASPs.

The shares are down 20% since the disappointing 4Q earnings report in which revenues, EPS and unit shipments came in lower than consensus expectations, while guidance for revenues was at the low end of consensus. Street sentiment is still positive on the shares with many believing the smart-phone market is growing fast enough and is big enough for several participants, including RIMM, to continue to prosper. Many are seeing a 40-50% upside in the share price from these levels and some analysts believe that RIMM's upcoming operating system will allow the company to capture share - I noted in the previous post that RIMM's architecture prevents it from functioning like a true smart-phone so I am not convinced.

The bright spot for the company is international where competition is less fierce. However, that light is likely to fade in the coming years.

Until I see signs that competitive pressures have abated I would continue to stay on the sidelines with RIMM.