More dire words for Research in Motion (RIMM) this morning in advance of the company’s fiscal Q1 report this afternoon, which was previewed for the Street in a May 29th warning RIM would have an operating loss.
There’s been a steady stream of notes in the last week or so predicting the quarter could turn out worse than expected.
The Street consensus for the three-month period ended in May has come down a bit this week, dropping to $3.08 billion in revenue and a loss of 3 cents a share from what was $3.11 billion and a profit of a penny.
Despite such glum sentiment, RIM shares have actually been in the green for brief moments here and there this morning. The stock is currently up 15 cents, or 1.6%, at $9.33.
Canaccord Genuity’s Mike Walkley�this morning reiterates a Hold rating and a $10 price target, and he thinks the quarter will actually come in much lower than the Street is expecting, at $2.79 billion in revenue on sales of 6.9 million BlackBerrys, and a net loss of 8 cents a share.
Writes Walkley, “Our June checks indicated continued weak BlackBerry sales and high levels of BlackBerry inventory.”
“We anticipate RIM will need to write down inventory when it reports May quarter results tonight.”
Walkley models $2.39 billion in revenue for this quarter, and a net loss of 13 cents, as he sees BlackBerry shipments dropping to 5.5 million units.
“We believe RIM management will need to sell the company,” he concludes, “as we do not believe BB10 devices will turn around its struggling business.”
Walkley assigns no value to RIM’s cash given the company “will likely start burning cash.” (Note that RIM management said in the company’s May 29th warning that it actually expected to increase cash during the quarter from $2.1 billion at the end of FYQ4.)
He assigns $2.5 billion to RIM’s patents.
And lastly, he assigns $2.75 billion to the company’s network operations business. However, he sees that business struggling if the company is not able to be competitive in selling handsets.
Hence, Walkley makes the case for how another, larger company, someone other than Apple�(AAPL), might be able to leverage the BlackBerry installed base in some fashion, if RIM were to strike a deal:
While we believe RIM�s NOC and subscriber base of 78M is the majority of RIM�s value, we believe it is difficult to separate RIM�s hardware business from its services business because we believe RIM will need to continue producing BlackBerry smartphones in order to maintain its 78M subscriber base, particularly the consumer portion of this base. We believe RIM�s higher ARPU enterprise subscriber base is roughly 20M of the total 78M subscribers, and we believe this 20M base would be valuable to a competing ecosystem such as Windows or Android. In fact, we believe a competing ecosystem such as Android (Google) or Windows (Microsoft) could run a virtualized version of BlackBerry OS on future smartphones and utilize the in-place NOC architecture in an attempt to migrate RIM�s leading enterprise base to a competing ecosystem longer term. Given its sizable installed base behind corporate fire-walls, we believe RIM�s BES and NOC architecture and recurring enterprise revenue stream are RIM�s key strategic assets and are attractive to potential suitors.
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