The hits just keep on coming for Research In Motion (Nasdaq: RIMM).
The beleaguered maker of BlackBerry phones and tablets is reeling from wholesale management changes, an incredible disappearing market share, and a chain of delays on the BlackBerry 10 update that's supposed to save RIM's bacon. And if you thought that was bad news, the story gets even worse.
The company filed its annual report last night, and one intrepid analyst dove into that dense filing in search of good news. Instead, Jefferies analyst Peter Misek found evidence that RIM is losing money on hardware sales.
According to Misek, RIM's operating margins in the hardware segment dropped from its usual, comfy mid-teens range to -4% in fiscal year 2012. That includes a $725 million writedown of unsold inventory, which may sound like a one-time thing. However, these writedowns have become a habit for the BlackBerry maker, and Misek expects more of the same in the current fiscal year.
The easy joke here is, of course, that RIM could make up for the negative margins by boosting unit volumes. But the punchline isn't funny this time, because that's exactly what the company needs to do. RIM is simply building more handsets than it can sell, and then either dumping the remainder at deep discounts or writing them off entirely.
In the fourth-quarter call, CFO Brian Bidulka explained that "certain models of the BlackBerry 7 lineup are not selling as well as anticipated." Subscriber counts in the lucrative U.S. market are not only slowing down, but actually dropping nowadays.
Maybe BlackBerry 10 can reverse these terrible trends, but that white knight won't appear until "the latter part of 2012." By then, Apple (Nasdaq: AAPL) will have the iPhone 5 (or iPhone 4GS, perhaps) either on store shelves or knocking on the door, depending on RIM's definition of "latter part." The Google (Nasdaq: GOOG) Android onslaught continues unabated. Big G is notching impressive market share wins in both the U.S. and abroad, especially in the all-important Chinese market. To add to the growing list of threats, the radar pair of Microsoft (Nasdaq: MSFT) and Nokia (NYSE: NOK) are doing their best to make a serious contender out of the Windows Phone platform, as well. They began selling their top-shelf Lumia 900 partnered phone in the U.S. at an aggressive price point of $100. Think RIMM can possibly match that?
And all of these relative upstarts will continue to displace BlackBerry phones in their natural corporate habitat. Every day of the delay is another day RIM can't afford to lose. So, I'm thinking we'll see more of those expensive inventory writedowns.
This margin analysis only underscores one inevitable conclusion: The smartphone market is full of winners, but RIM ain't one of 'em.
