RIMM – What now?

Just as a reminder, this is what the RIMM chart looked like on February 10, 2012.

RIMM with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

We updated Facebook chart on the night of the earnings release, however this is the most recent graph we have updated from Monday, April 9, 2012 computer run.

RIMM with weekly price bars, EBV Lines (colored lines) and model price (dashed line)

For those interested, a daily updated chart of RIMM subsequent to this post will be maintained on Facebook, here.

On our March 14, 2012 blog we wanted to see three things.

  • Obviously, the year-end balance sheet will be released, and we will update the model price chart to reflect this new information.

The year-end balance sheet had been released and above is the new chart as of Monday, April 9, 2012.  Even though RIMM made money in the 4th quarter they took two write-offs. They took a goodwill impairment charge of US$355 million (US$346 million after tax) and a further US$267 million (US$197 million after tax) inventory write-down relating to the BB 7 phone.  This had the effect of reducing the EBV of RIMM, thereby reducing EBV-3 from the last blog reproduced above.

With the above noted write-off, RIMM reduced their theoretical earnings from $1.08 to $0.91, a reduction of 15 percent, which is a positive.  (See Theoretical Earnings under Key Concepts tab, above)

  • Most analysts still have RIMM making money in the 4th quarter.  (Scotiabank for instance is looking for 85 cents for the quarter.)  Just as long RIMM is making money on an operations basis, until the release of QNX enabled smart phones, this we would view as positive.

RIMM reported an adjusted EPS of $0.80, which obviously disappointed analysts however they did make money.  Stocks trading at EBV-3; usually don’t make any money at all!

Even though the company has suspended guidance and the company’s sales of BB 7 are slowing faster then some analysts expected, RIMM should be profitable in the second and third quarter before the release of BB 10 in Q4.

  • Update on when the new QNX BB 10 smart phones will be released.  Current release date we believe is November 2012.  If this release date were pushed forward, this would be very positive for RIMM.  (Just as a delay, would be viewed negatively.)

Much of everyone’s relief the new QNX BB 10 looks like a go in October/November of 2012.  Unfortunately the time frame mentioned misses the back-to-school season however the long delayed product will finally be released.

What Now?

Not much.  Certainly RIMM is in the doghouse with Wall Street and every other stakeholder it seems.  The best thing for the company is to get out of the financial headlines and let the new CEO go about building a management team and develop processes and procedures to launch great products in the future.

We believe the stock will drift between EBV-3 ($12.07) and EBV-2 ($14.05).  We see no reason, with the present fact set, for RIMM to trade below EBV-3.  However, if a significant, and pronounced breakdown of EBV-3 sometime between now and the launch of BB10 we would use that level $12.07 as a sell signal.

On the positive side, if RIMM breaks above EBV-2 ($14.05), this would be a significant buy signal and evidence that RIMM maybe on the right track long-term.

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