This week, at a developer conference in California, Research In Motion Ltd. CEO Thorsten Heins confidently predicted his company has a shot at being the third-biggest player in the smartphone sector.
It was, in a way, a refreshing moment of candour from the head of a company that’s not known for such moments. For years, RIM’s stock price plummeted as its executives largely missed or ignored the fast-growing consumer portion of the smartphone industry. RIM, the company that invented smartphones, continued operating like the only player in the sector long after it wasn’t. Now, Mr. Heins is admitting what seems obvious to outside observers: that phones running on Apple Inc.’s iOS software and Google Inc.’s Android operating system have overtaken BlackBerrys, and that RIM’s road to redemption starts with beating the other players -- such as phones powered by the mobile version of Microsoft’s Windows -- for the bronze medal.
RIM reports its second-quarter fiscal 2013 earnings on Thursday. Analysts are largely expecting another brutal quarter for the company, as it continues to struggle in a kind of no-man’s land, with its current BlackBerrys starting to show their age, but the new line not due out until the first quarter of next year.
The company’s stock price showed signs of life earlier this week, after RIM demonstrated more features of its upcoming phones, dubbed BlackBerry 10. Still, RIM shares currently hover around the $7 mark, well below the 52-week high of almost $25, and light-years away from the 2008 high of $145. If RIM posts another disappointing quarter, its shares may well take yet another beating.
Here are some of the things investors will be keeping a close eye on when RIM posts its numbers after market close on Thursday:
1: Average Selling Price
RIM recently surprised observers by announcing its subscriber base has crossed the 80-million mark, up from 78-million last quarter. While the gain may seem small, many analysts actually expected RIM to be losing subscribers by now, as more advanced phones from Apple, Samsung, Nokia, Motorola and others have hit the market in the time since RIM last released a new device.
But if those new subscribers are largely buying lower-end, lower-margin BlackBerrys, RIM may not be making much money off them.
“It was encouraging to see the company recently highlight that the active customer base continues to grow with 80M subscribers, compared to 78M in the prior quarter,” said BGC Financial technology analyst Colin Gillis. “While this is a much more positive outcome than a shrinking subscriber base, it does not mean that the company has stopped the slide of its average-selling-price. We look to see if the company can increase subscribers while maintaining a level of pricing that allows for profitability.”
2: BlackBerry 10 Details
At its developer conference in California this week, RIM showed off more features of its upcoming phones. Chief among those features is the ability to quickly see all incoming communications on your phone without leaving the application you’re currently running.
But if RIM is going to convince current BlackBerry owners to upgrade to BB10 -- and maybe some non-BlackBerry owners to switch -- it needs to show them more than that. Investors will want to know as much as possible about the capabilities of the new phones, in large part to compare them with the iPhone 5, the Samsung Galaxy SIII and multiple new phones from Nokia, which together represent RIM’s stiffest competition on each of the three major mobile platforms (iOS, Android and Windows).
The good news for RIM is that it has a bit of breathing room now, with most of the major manufacturers having already announced or released their latest devices. The bad news is that if BB10 fails to match the capabilities of phones that will be almost half a year old by the time the new BlackBerrys hit the market, RIM will almost certainly have a flop on its hands.
The single worst thing RIM can do at this point is push back the launch date of its devices -- something it has already done multiple times over the past year. Fortunately, the company hasn’t shown any signs it will miss its latest deadline.
In the past, RIM executives have tried to frame the delays in a positive light by arguing that carriers would actually prefer the new phones to come out later, because by then the next-generation network of high-speed cellular technology will be more in place. That argument is debatable at best. However it is in the carriers’ best interest to see BB10 do well once the new phones hit the market, in large part because the fewer major players in the smartphone sector, the more those players get to dictate the terms of the deal with carriers. Consumers are also likely to benefit if both BB10 and the new Windows-powered phones thrive, as they will likely encourage everybody else in the sector to innovate.
Ideally, RIM will give investors, customers and analysts a specific launch date for BB10 devices during the earnings call on Thursday. Realistically, however, the company is unlikely to do that, preferring instead to leave itself with some flexibility by saying only that the phones will be out in the first quarter of next year.
4: “Strategic options”
During the first three quarters of this year, as RIM’s stock continued to plummet, Mr. Heins made it clear that he would look at all possible options for the company. Many took this to mean that an outright sale of RIM was not out of the question. Amazon.com Inc. and Facebook Inc. were among the names thrown around by observers as companies that might be interested in some or all of RIM’s assets.
But in reality, there are multiple other options for the company beyond putting itself up for sale. Investors will be looking for any details on possible partnerships, such as allowing other device manufacturers to use the BlackBerry operating system or, conversely, designing BlackBerrys that run on Google’s Android operating system or other outside software.
RIM could also try to generate some revenue from its other assets, such as its massive patent portfolio. In addition to licensing its patents, the company could leverage its network operating centres, which act as a kind of routing infrastructure for all BlackBerry messages -- most device manufacturers don’t also have their own network operations.
It is likely that Mr. Heins will not want to dwell on such options at a time when the company’s focus is supposed to be entirely on getting the BB10 platform right. But if RIM posts another miserable quarter, and investors lose faith in the new phones before they even hit the market, the CEO might find himself under even more pressure to pursue other options.
More than anything, investors don’t want to hear anything unexpected. The street is already predicting a loss from the company in the second quarter, and probably the third as well. In fact, some observers may not be all that shocked if RIM starts burning through its large cash reserve. Even with this week’s bounce, RIM shares are only about 80 cents higher than their 52-week low (and not far from the nine-year low).
It is somewhat more difficult for analysts to predict RIM’s results now that the company has stopped issuing guidance. Still, as long as the BlackBerry-maker can post numbers somewhere in the range of analyst expectations, which currently hover at a loss of about $0.50 (U.S.) per share for the quarter, investors may not complain too much.
Any larger losses, product delays or other nasty surprises, however, and RIM shares may be at a new 52-week low come Friday.