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Earnings Preview: RIMM

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Research In Motion Ltd. is scheduled to release its first quarter 2013 results on Thursday, June 28, after the closing bell. The current Zacks Consensus Estimate for the to-be-reported quarter is a loss of 2 cents, representing year-over-year decline of 101.68%.

Research In Motion has outperformed the Zacks Consensus Estimate in only two out of the last four quarters with an average earnings surprise of a negative 1.62%.

Fourth Quarter Recap

On March 30, 2012, Research In Motion reported fourth quarter 2012 financial results. Adjusted EPS in the reported quarter was 80 cents, a penny shy of the Zacks Consensus Estimate. GAAP net loss in the fourth quarter of fiscal 2012 was $125 million or 24 cents per share compared with a net income of $934 million or $1.78 per share in the year-ago quarter.

Total revenue in the fourth quarter of 2012 was $4.2 billion, down a massive 24.6% year over year and also well below the Zacks Consensus Estimate of $4.5 billion.

Research In Motion sold 11.1 million BlackBerry mobile phones, down 21% sequentially. The company also sold over 500,000 BlackBerry Playbook tablets, up 70% sequentially. However, Playbook tablets were sold at a considerable discount of $200 compared to its original price of $500.

Agreement of Analysts

The estimate revisions over the last 30 days indicate that analysts are more or less in agreement regarding the company’s dismal situation.

Specifically, 30 out of the 34 analysts providing estimates for the first quarter of 2013 lowered estimates, while none moved in the opposite direction. Likewise, for the second quarter of fiscal 2013, out of the 33 analysts providing estimates, 28 analysts slashed estimates while only one analyst raising the estimate.

Similarly, for fiscal 2013, 31 out of the 37 analysts lowered estimates while only one analyst raised the estimate. For fiscal 2014, out of the 28 analysts, 19 analysts lowered estimates with only two analysts moving in the opposite direction.

We believe that stiff competition from Apple Inc.’s (AAPL - Free Report) iPhones and Google Inc.’s Android-based smartphones coupled with a backdated operating system have caused downward revision of estimates. Moreover, delay in the launch of BlackBerry 10-based smartphones coupled with the lackluster performance of PlayBook tablets has resulted in further decrease in estimates.

Magnitude of Estimate Revisions

Despite the huge number of analysts lowering estimates for the first and the second quarters of 2013, the Zacks Consensus Estimates were unchanged at a loss of 2 cents and 4 cents, respectively. This seems to indicate that the estimate revisions were not material and more in the nature of fine-tuning.

Likewise, for fiscal 2013, the current Zacks Consensus Estimate was just a penny below the previous estimate of 43 cents. However, for fiscal 2014, the current Zacks Consensus Estimate was 3 cents above the earlier estimate of 61 cents.

Earnings Surprises

In the previous quarter, Research In Motion reported EPS of 80 cents, which fell short of the Zacks Consensus Estimate by a penny. The current Zacks Consensus Estimates for the ongoing and upcoming quarters imply a 300.00% and 150.00% downside risk (essentially a proxy for future earnings surprises). Likewise, the estimate for fiscal 2013 and 2014 reflect downside potentials of 59.52% and 39.06%, respectively.

Our Recommendation

We maintain our long-term Neutral recommendation for Research In Motion. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating on the stock.



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