Sanguine on RIM Earnings

 | Dec 20, 2012 | 3:33 PM EST
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I am long Research In Motion (RIMM) going in to Thursday night's earnings.

Most are expecting a bloodbath of a quarter -- and I understand that, given that the company is still only selling its two-year old BB7 phones, which certainly aren't competitive.

But the key questions are as follows: Where will RIM's net subscriber count end for the quarter, and how much cash does the company have in the bank?

On both of those metrics, RIM exceeded expectations last quarter. It actually increased its subscriber base by 2 million, when many thought it might go negative, and it even increased cash levels to $2.1 billion. Because of that, the stock rallied right after last quarter's report.

It's worth noting that RIM drew down a lot of its inventory and pulled in some account-receivables in order to make the cash increase happen -- not that there's anything wrong with that. It's just that the skeptics wonder if the company will be able to do it again this quarter.

Going into this number, the Street is expecting a loss of $0.35 a share ($186 million) on $2.66 billion in revenue.

Tom Astle of Byron Capital thinks this quarter could be worse. He expects a $0.48-per-share loss on a top line of $2.5 billion. He also thinks there's a chance RIM could show a free-cash-flow loss of $80 million, which is very unusual for the formerly very profitable company.

Will a large current loss scare RIM investors? If the cash remains stable, I don't think people will mind the losses. If the subscriber count doesn't diminish too much, either, that will be a very bullish development.

What could really be a positive for the stock tonight is if RIM starts to describe BB10 in a lot more detail than it has already done at this point. Ideally, the company would give some guidance for next-quarter BB10 shipments to carriers and how much demand it has received.

If RIM did that, it could be incredibly bullish for the stock. However, I expect management will keep things close to the vest and talk about other specifics around the launch. For example, what has it seen in terms of carrier feedback from labs testing? How will RIM migrate users to BB10? How about supporting chief information officers who need to upgrade their BlackBerry Enterprise Servers? How many carriers want the phones to give some proxy for future in-stocking?

Most people will have forgotten about the Cost Optimization and Resource Efficiency (CORE) program -- announced months ago -- which was to hack about 5,000 jobs from RIM's payrolls. Some update on that, and proof of the cost savings in the financial results, could be big positives for the stock.

Even if there is a large headline loss for the company when the numbers first hit tonight, and the stock initially drops, watch for a comeback on the stock after-hours during the analyst question-and-answer session as RIM gives more details on its BB10 plans.

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