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Earnings Preview: RIMM

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Research In Motion Ltd., is all set to unveil its second-quarter 2013 results on Thursday, September 27, after the closing bell. The current Zacks Consensus Estimate for the to-be-reported quarter is a loss of 46 cents, representing a year-over-year decline of 157.34%.

Research In Motion surpassed the Zacks Consensus Estimate in only one out of the last four quarters with an average earnings surprise of a negative 161.81%.

First Quarter Recap

On June 28, 2012, Research In Motion reported first-quarter 2012 financial results. First quarter adjusted earnings per share of a loss of 37 cents were much wider than the Zacks Consensus Estimate of a loss of 5 cents. GAAP net loss in the first quarter of fiscal 2013 was $518 million or a loss of 99 cents per share compared to a net income of $695 million or $1.33 per share in the year-ago quarter.

Total revenue in the first quarter of fiscal 2013 was $2,814 million, down by a whopping 42.7% year over year and also fell short of the Zacks Consensus Estimate of $3,081 million.

Research In Motion sold 7.8 million BlackBerry devices, down 40.9% year over year. The company also sold around 260,000 BlackBerry Playbook tablets, down 48% sequentially.

Agreement of Analysts

Out of the 32 analysts providing estimates for the second quarter of 2013, only one lowered the estimate with none increasing the same. Likewise, for the third quarter of fiscal 2013, out of the 30 analysts providing estimates, only one analyst raised the estimate while another analyst slashed the estimate for the quarter.

Similarly, during the last 30 days, for fiscal 2013, out of the 34 analysts covering the stock, only one analyst lowered the estimate. For fiscal 2014, out of the 30 analysts, two analysts reduced the EPS estimate while none raised the same.

We believe that stiff competition from Apple Inc.’s (AAPL - Free Report) new iPhone 5 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 have resulted in further downward revision in estimates.

Magnitude of Estimate Revisions

During the last 30 days, the current Zacks Consensus Estimates for the second and third quarter of 2013 were at par with the previous estimate of loss per share of 46 cents and 42 cents, respectively.

However, for fiscal 2013, the current Zacks Consensus Estimate was a penny higher than the previous estimate of a loss of $1.48 per share. Likewise, for fiscal 2014, the current Zacks Consensus Estimate was 5 cents higher than the previous estimate of a loss of 73 cents per share.

Earning Surprises

In the previous quarter, Research In Motion reported loss per share of 37 cents, which fell short of the Zacks Consensus Estimate by 32 cents. The current Zacks Consensus Estimates for the ongoing quarter imply a 4.35% downside risk while the next quarter indicates an upside potential of 2.38% (essentially a proxy for future earning surprises). Likewise, the estimates for fiscal 2013 and 2014 reflect upside potentials of 19.46% and 62.82%, respectively.

Our Recommendation

We maintain our long-term Neutral recommendation for Research In Motion. Currently, it has a Zacks #4 Rank, implying a short-term Sell rating on the stock.

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