RIM Investors Will Be Waiting AWhile for BB10 Sales Boost

Research In Motion Ltd. (RIMM) investors, who anticipate a glimpse of the delayed BlackBerry 10 operating system this week, will have to wait at least five months before seeing a rebound in sales.

RIM Chief Executive Officer Thorsten Heins takes the stage tomorrow in San Jose, California, to showcase BB10. Two days later the Waterloo, Ontario-based company will probably report that sales fell 41 percent in its latest quarter from a year earlier, according to a Bloomberg survey of 35 analysts.

Sales are predicted to start climbing sequentially in February, according to analysts’ estimates. However, given that revenue has missed those estimates for the past six quarters, RIM’s recent track record on product delays and the debut of Apple Inc.’s latest phone, a recovery is not likely before next summer, said Stuart Jeffrey, an analyst at Nomura Securities.

“There are some people who believe new products drive handset stocks and there’s new product coming, so therefore they’ll get an uplift,” Jeffrey said by phone from New York. “If people are holding on for that, they’re going to have to wait a long time.”

RIM is trying to get its first two BB10 models into stores early next year to stop customers from abandoning it for Apple Inc. (AAPL)’s iPhone and devices built on Google Inc. (GOOG)’s Android software. In the meantime, the BlackBerry faithful is holding off on buying current models because they’re waiting for BB10.

Sales Tumble

Revenue dropped 43 percent in the most recently reported quarter. The shrinking sales have cut RIM’s share of the smartphone market it once dominated to 4.8 percent, according to research firm IDC. Android climbed to 68 percent last quarter, while Apple slipped to 17 percent.

RIM sales will probably fall to $2.27 billion in the current quarter before rebounding to $2.56 billion in the February period, the average analyst estimate shows. Nomura’s Jeffrey is less optimistic. He sees sales falling to $2.05 billion this quarter and to $1.98 billion next quarter.

RIM shares are down more than 95 percent from its mid-2008 high and have plunged 70 percent in the past 12 months. The stock fell 2.3 percent to $6.31 at 4 p.m. in New York today.

“We remain focused on the successful launch of BlackBerry 10,” RIM said in an e-mailed comment, reiterating that the release is planned for the first quarter of next year. “The delivery of high quality, fully-featured BlackBerry 10 smartphones will be an attractive offering to our customers.”

Little Effect

The impact of BlackBerry 10 will be minimal in the February quarter because the new phones will be pitched to mainly high- end users in limited number of markets like the U.K. and the U.S., and the likelihood that BB10 won’t hit stores till after the quarter ends, Jeffrey said.

“They’ve had quite a few delays so to assume it will be out immediately in January might still be a little optimistic,” he said.

BB10 has been postponed at least twice, pushing back its release date by more than a year. While Chief Marketing Officer Frank Boulben said in July that RIM plans to introduce some models in January, Heins declined to confirm that timing, sticking to the calendar first-quarter planning. To underscore the point, Heins said in June that the next few quarters will be “very challenging.”

“It has been perfectly telegraphed that this quarter and next quarter will be horrible for RIM,” said Kevin Stadtler, principal of Stadtler Capital Management in Fort Worth, Texas, which owns 30,000 RIM shares.

Customer Base

Beyond February, Stadtler sees RIM’s results improving as businesses begin upgrading their supply of BlackBerrys issued to employees. Investors shouldn’t overlook RIM’s fundamentals, namely its 78 million subscribers worldwide, no debt and more than $2 billion in cash, he said.

“The window is still open for RIM to be the third ecosystem,” behind Apple and Android, Stadtler said by phone.

Fighting RIM for that title is Microsoft Corp. (MSFT), which struck a partnership with ailing Nokia Oyj (NOK1V) after the Finnish smartphone maker decided to swap its aging Symbian platform in February 2011 for Microsoft’s Windows Phone.

The collaboration has yielded models like the Lumia 820 and 920, which reviewers praised for its design and features but which generates less publicity than Apple and Android. Nokia shares tumbled 13 percent when the Lumia was unveiled on Sept. 5, after almost doubling in the previous six weeks.

Microsoft Partnership?

Microsoft may try to bolster its position by teaming up with RIM, Stadtler said.

“Nokia hasn’t been the partner that Microsoft envisioned,” he said. “RIM could be.”

Peter Wootton, a spokesman for Redmond, Washington-based Microsoft, declined to comment, as did Espoo, Finland-based Nokia.

Heins is leading a strategic review of the company and is considering licensing BB10 or forging a partnership with another technology company. He hasn’t ruled out a sale of the company, though says that isn’t the focus of the review.

For now, RIM plans to use this week’s San Jose conference to generate some buzz for the new lineup among developers of games, music and news applications.

Cupertino, California-based Apple, which began selling the iPhone on Sept. 21, is expected by analysts to sell as many as 10 million phones on its weekend debut. RIM shipped 7.8 million BlackBerrys in its June quarter.

On the day Apple fans lined up to be the first to buy the iPhone 5, RIM was racing to fix a service disruption in Europe, the Middle East and Africa. Though it was resolved within hours, the event marked the second year in a row that an outage coincided with Apple’s release of a new device.

Pierre Ferragu, a Sanford C. Bernstein analyst who rates RIM the equivalent of a hold, said it may be too late for the BlackBerry to recover.

“Research In Motion has lost the ecosystem war,” he said in a research note last week. “It is unreasonable to believe BB10 can save the boat.”

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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