The pattern of RIM’s quarterly results is getting monotonous ‘ better than expected profits today, but deep concerns about performance tomorrow. For its fiscal fourth quarter, ended on February 26, the BlackBerry maker reported a 32% year-on-year leap in net profit, but saw its shares fall by nearly 10% on a disappointing outlook.
One of the key areas of risk must be the PlayBook tablet. Despite the firm’s high hopes, it is piling up the reasons not to choose the device even before it ships. RIM already took the risk of investing in a new operating system, based on its QNX acquisition, to introduce modern, web/cloud functionality to its experience. This may prove a good call if QNX takes off, but for now it has two downsides.
One is limited harmonization, for now at least, with BlackBerry OS, which dilutes RIM’s claim that PlayBook is a companion for its phones and risks throwing away its captive customer and developer base. Instead, it has to compete with Android and iOS without that home advantage, in which case its second downside, lack of apps, could be a deciding factor. RIM has addressed that by confirming that PlayBook will also be able to run Android and Java apps via ‘app players’ (runtimes for BlackBerry Java and Android 2.3). This greatly boosts the choice of software, but since the apps will run less well than in native mode, why not just buy an Android tablet (or wait two years for QNX and BlackBerry OS to be unified)?
RIM co-CEO Jim Balsillie said on the company’s earnings call that these players would ensure a ‘tonnage of apps’ for users, but that people wanting to create really high performance programs optimized for the PlayBook should use its own OS. He also promised a ‘major upgrade’ for BlackBerry OS with release 6.1, which will be unveiled in May (but he said that about last year’s disappointing OS 6 too).
Just to shoot itself even more firmly in the foot, RIM is set to launch PlayBook without the company’s crown jewel, the native email application. According to an internal Verizon document, the tablet will not have the email support at launch. ‘In a future software update for the BlackBerry PlayBook, we will provide native email, calendar, and contact apps for those customers who prefer to have these apps directly on the tablet,’ says the document, as revealed by the CrackBerry blog, which wrote: ‘The reality of the matter is that RIM simply does not yet have this functionality ready for the new QNX operating system in the way they want to roll it out (and trust that it’s secure), and with the usage case of the tablet being different from that of a smartphone, RIM figured it wasn’t necessary to wait for it to go live in order to get PlayBook sales rolling.’
RIM’s fourth quarter itself was solid, with profit of $934 million or $1.78 per share, slightly above analyst expectations of $1.76, on revenue on target at $5.6 billion. However, RIM forecast lower results for the current first fiscal quarter, as it plows money into refreshing its product line to keep pace with Google and Apple. It predicted earnings per share between $1.47 and $1.55 for Q1, because of investment in R&D for new offerings and in sales and marketing for the PlayBook. It also said it was giving a wider guidance range in case of supply chain disruption as a result of the Japanese earthquake and tsunami and its revenue forecast is now between $5.2 billion and $5.6 billion.
RIM has faced these concerns before ‘ although it constantly defies doomsayers and comes up with strong results, its platform has started to age badly, and it lacks the same resources as its main rivals to create a splash around new launches.
Its other challenge is the price war, especially for a firm that once enjoyed the high margins of an enterprise business. It shipped 14.9 million smartphones in the quarter and 52.3 million for the full year, but average selling prices are falling and it expects its Q1 gross margin to be 41.5%, well below the 42.65% expected. It is countering increasing pressure in its north American heartland with a rise in international sales but it said its Q1 guidance reflected ‘a mix shift in handsets towards lower ASP products’.
‘Generally looks like Q4 was in line with expectations, Q1 is a little lower on EPS due to research and development, along with sales and marketing associated with the tablet initiative,’ commented Tavis McCourt, an analyst at Morgan Keegan.