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As RIM prepares to report today, low expectations are in its favour

Research In Motion Ltd. has had an incredible run over the past couple of months, its shares doubling on hype surrounding its upcoming BlackBerry 10 phones after reaching brutal lows in September.

Deborah Baic/The Globe and Mail

Research In Motion Ltd. has had an incredible run over the past couple of months, its shares doubling on hype surrounding its upcoming BlackBerry 10 phones after reaching brutal lows in September.

Numerous analysts upgrades have boosted RIM's withered stock from around $6 to about $13. Though still a long way from highs near $150 a few years ago, the company's shares has benefited from a surge of momentum and positive publicity since the Waterloo, Ont.-based company's executives started showing off the sleek, touchscreen BlackBerry before its global launch party on Jan. 30, 2013.

But this week RIM will not be unveiling a shiny, new gadget: The company will be reporting its fiscal third-quarter numbers – and it's not going to be pretty.

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After markets close on Dec. 20, investors and RIM boosters will be reminded that the company is still in serious trouble: Market share continues to collapse in key markets and its rivals, from Apple Inc. to Samsung Electronics Co., are going to keep pushing out devices that have made people abandon their BlackBerrys in droves over the past few years – driving the former industry leader's share of the U.S. smarpthone market to less than 2 per cent, according to one report.

The one thing working in RIM's favour right now is low expectations: After years of big profits, shares reacted positively when it reported its second quarter back in September, after posting a narrower loss than expected. The smartphone maker stopped issuing guidance as its competitive position worsened, but analysts expect much of the same: Lower sales, lower revenues, lower profit and lower margins.

"I would be shocked if the numbers were higher," says Richard Tse, an analyst with Cormark Securities Inc. who has a "buy" rating on RIM. "I don't think (this) is going to be rosy. If it turns out to be, the stock will rip."

Analysts will be looking at two key numbers when RIM reports on Thursday.

The first will be RIM's cash pile: if it has continued to grow, if it has held steady, or if it has begun to burn as fundamentals deteriorate further. The last time RIM reported, it had about $2.3-billion, and Mr. Tse says the firm will need about $2-billion to continue operations as it stickhandles a global product launch in early 2013.

The second is RIM's subscriber count, which used to grow by millions each time RIM reported, but has slowed dramatically over the past few quarters. In the last quarter, RIM surprised analysts by not losing any subscribers and pushing the total number slightly above 80 million, but there are similar fears for this quarter – that RIM's user base will start shrinking as sales dry up ahead of a new device launch.

"I think investors should keep [third-quarter] expectations in check," says Tom Astle of Byrom Capital Market. "The company is in a tough situation."

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There will also be interest in whether RIM's high-margin service revenue, which the company receives from carriers, has continued to decline. This lucrative source of revenue, which some observers estimate to be as high as 95 per cent margin since it comes from RIM's existing network infrastructure, has been dwindling as RIM lost its "must-have" status with carriers and the consequent ability to exert pressure in negotiations.

Regardless of the weakening fundamentals, analysts are prepared for the grim news, and many are recommending RIM shares ahead of the BlackBerry 10 launch – particularly because some of the 80-million existing users will want to upgrade. It's unclear, however, how many analysts are contemplating RIM as a long term play, given the slim chances that BlackBerrys will win back share from the industry's giants.

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