Research In Motion Ltd. (RIMM) is in a complete mess as its revenue and net income plunged in the fourth quarter of fiscal 2012. Moreover, the company’s future financial outlook looks grim and the stock price is at its trough. All these negative events took place despite the fact that the reported quarter included December Holiday sales.
In the previous quarter, Research In Motion sold 11.1 million BlackBerry devices, down 21% sequentially. This figure was at the low end of its previous guidance range of 11 million – 12 million. The company also sold over 500,000 BlackBerry Playbook tablets, up 70% sequentially. However, Playbook tablets were sold at a considerable discount of $200 compared with its original price of $500.
GAAP net loss in the fourth quarter of fiscal 2012 was $125 million or a loss of 24 cents per share compared with a net income of $934 million or $1.78 per share in the year-ago quarter. In the previous quarter, Research In Motion incurred huge one-time charges including $355 million of goodwill impairment and $267 million for an inventory provision taken on certain BlackBerry7 products. The BlackBerry 7 OS, which was launched just six month ago, fails to meet management expectations.
Fourth quarter adjusted EPS was 80 cents, a penny shy of the Zacks Consensus Estimate. The market sentiment before the earnings release was clearly on the negative side as depicted by the Zacks Consensus EPS Estimate, which fell 2 cents in the last 30 days. As many as 9 analysts downwardly revised their respective estimates. However, the actual figure was even below the consensus figure.
Total revenue in the fourth quarter of fiscal 2012 was $4,190 million, down by an enormous 24.6% year over year and also well below the Zacks Consensus Estimate of $4,528 million. Segment wise, Hardware revenue was approximately 68%, Services revenue was 27% and the remaining 5% came from Software and other source.
Quarterly gross margin was 33.4%. After adjusting for inventory provision, the gross margin stood at 39.8%, still far below the prior-year quarter gross margin of 44.2%. Quarterly operating loss was $142 million compared with an operating income of $1,240 million in the year-ago quarter.
During fiscal 2012, Research In Motion generated $2,912 million of cash from operation compared with $4,009 million in fiscal 2011. Free cash flow in fiscal 2012 was $2,002 million compared with $2,970 million in fiscal 2011. Cash and marketable securities, at the end of fiscal 2012, was $2,111 million compared with $2,698 million at the end of fiscal 2011. The balance sheet of Research In Motion remains debt free.
Future Financial Outlook
Research In Motion decided to refrain from providing any specific financial guidance in future. We believe this decision only highlights how grave the situation is as management is unsure of its future prospects. So far the company failed to provide any specific time frame when its free fall will ultimately end. Nevertheless, management forecasted that the ensuing first quarter of fiscal 2013 will witness sequential revenue decline together with downward pressure on operating margin, which will continue throughout fiscal 2013.
Strategic Moves
Lots of changes are coming at the helm of the company affair. A handful of senior executives, including former co-CEO and current director Jim Balsillie, will resign from the Board. Dan Dodge, former head of QNX Software, will replace David Yach as the company’s COO. The company’s CEO Thorsten Heins has hinted that management is exploring several opportunities including partnerships and joint-venture licensing and it may even consider for a possible sale out of the company.
Our View
The nightmare of Research In Motion continues ever since Apple Inc.’s (AAPL) iPhone hit the market. The situation aggravated once Google Inc. (GOOG) launched its Android software and several handset manufacturers adopted that operating system.Research In Motion is continuously delaying its new products introduction as it yesterday announced that the next-generation BlackBerry 10 OS based phones will hit the market later this year.
We maintain our long-term Underperform recommendation on Research In Motion. Currently, it holds a short-term Zacks Rank #5 (Strong Sell) on the stock.
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