RIM reports Q2 earnings: Revenue and EPS both miss; phone and PlayBook shipments decline

Research In Motion on Thursday reported its earnings results for the fiscal second quarter. Revenue and EPS both missed estimates; the vendor reported revenue of $4.17 billion and earnings of $0.80 per share. RIM had previously forecast revenue of between $4.2 billion and $4.5 billion and earnings of between $0.75 and $1.05 per share for its August quarter, and Wall Street expected second-quarter revenue of $4.47 billion and EPS of $0.88. Net income in the second quarter totalled $329 million. RIM also had projected handset shipments to reach between 11 and 12.5 million units, but missed there as well — the company shipped only 10.6 million BlackBerry phones in its August quarter. RIM still managed to push its subscriber base past 70 million for the first time, up 40% year-over-year. As for RIM’s QNX tablet, PlayBook shipments fell well below expectations; the company only shipped 200,000 units during the device’s first full quarter of availability, less than half of analysts’ expectations (700,000). RIM shipped 500,000 PlayBooks in its previous quarter. The company’s stock fell 11% immediately following its report. Full press release after the break. RIM’s full press release follows below.

Research In Motion Limited (RIM) (NASDAQ: RIMM)(TSX: RIM), a world leader in the mobile communications market, today reported second quarter results for the three months ended August 27, 2011 (all figures in U.S. dollars and U.S. GAAP, except where otherwise indicated).

Highlights:

Revenue in the second quarter was $4.2 billion and service revenue surpassed $1 billion for the first time — GAAP net income of $329 million or $0.63 per fully diluted share; adjusted net income of $419 million or $0.80 per fully diluted share — The BlackBerry subscriber base grew 40% year over year to surpass 70 million — RIM’s largest roll-out of BlackBerry smartphones was initiated with 7 new smartphones launched with over 90 carrier and distribution partners in 30 countries during the latter part of Q2 — Approximately $780 million was invested as part of a consortium of companies that successfully bid to acquire intellectual property assets from Nortel — BlackBerry smartphone shipments in Q3 are estimated to grow between 27- 37% over Q2 shipments

Q2 Results:

Revenue for the second quarter of fiscal 2012 was $4.2 billion, down 15% from $4.9 billion in the previous quarter and down 10% from $4.6 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 73% for hardware, 24% for service, and 3% for software and other revenue. During the quarter, RIM shipped approximately 10.6 million BlackBerry smartphones and approximately 200,000 BlackBerry PlayBook tablets.

“We successfully launched a range of BlackBerry 7 smartphones around the world during the latter part of the second quarter and we are seeing strong sell-through and customer interest for these new products. Overall unit shipments in the quarter were slightly below our forecast due to lower than expected demand for older models,” said Jim Balsillie, Co-CEO at Research In Motion. “We will continue to build on the success of the BlackBerry 7 launch to drive the business as we focus our development efforts on delivering the next generation, QNX-based mobile platform next year.”

The Company’s GAAP net income for the quarter was $329 million, or $0.63 per share diluted, compared with GAAP net income of $695 million, or $1.33 per share diluted, in the prior quarter and net income of $797 million, or $1.46 per share diluted, in the same quarter last year. Adjusted net income for the second quarter was $419 million, or $0.80 per share diluted. Adjusted net income and adjusted diluted earnings per share exclude the impact of a pre-tax one-time charge of $118 million for the Company’s cost optimization program that was implemented in the second quarter of fiscal 2012. Details on the cost optimization program are available in the Company’s press release dated July 25, 2011 as well as in Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal period ended August 27, 2011, which will be filed shortly. This charge and its related impacts on net income and diluted EPS are summarized in the table below.

Reconciliation of GAAP net income to adjusted net income (United States dollars, in millions except per share data) For the quarter ended August 27, 2011 ————————– Net Income Diluted EPS ————————– As reported $ 329 $ 0.63 Adjustment: Cost optimization program, net of income tax(1) 90 0.17 ————————– Adjusted $ 419 $ 0.80 ————————– ————————–

Note: Adjusted net income and adjusted diluted earnings per share do not have any standardized meaning prescribed by GAAP and thus are not comparable to similarly titled measures presented by other issuers. The Company believes that the presentation of adjusted net income and adjusted diluted earnings per share enables the Company and its shareholders to better assess RIM’s operating results relative to its operating results in prior periods and improves the comparability of the information presented. Investors should consider these non-GAAP financial measures in the context of RIM’s GAAP results.

(1) During the second quarter of fiscal 2012, the Company implemented a cost optimization program to streamline operations across the organization. The Company incurred approximately $118 million in total pre-tax charges related to the cost optimization program. Substantially all the pre-tax charges are related to one-time employee termination benefits and the identification and elimination of redundant facilities, with the charges included in the relevant line items in the Company’s consolidated statement of operations. During the second quarter of fiscal 2012 pre-tax charges of approximately $13 million were included in cost of sales, charges of approximately $19 million were included in research and development, and charges of approximately $86 million were included in selling, marketing and administration expenses. Additional charges for headcount related costs associated with our cost optimization program may also be incurred in subsequent quarters.

The total of cash, cash equivalents, short-term and long-term investments was $1.4 billion as at August 27, 2011, compared to $2.9 billion at the end of the previous quarter, a decrease of $1.5 billion from the prior quarter. Uses of cash included strategic purchases of intellectual property assets associated with RIM’s participation in a consortium of companies that successfully bid to acquire Nortel Networks Corporation’s patent portfolio, of which RIM’s cost is approximately $780 million, capital expenditures of approximately $285 million, and working capital requirements.

Q3 and FY2012 Outlook

Revenue for the third quarter of fiscal 2012 ending November 26, 2011 is expected to be in the range of $5.3-$5.6 billion. Gross margin percentage for the third quarter is expected to be approximately 37%. BlackBerry smartphone shipments are expected to be between 13.5 million and 14.5 million units. Adjusted earnings per share for the third quarter, excluding the impact of charges related to the Company’s cost optimization program, is expected to be in the range of $1.20-$1.40. Adjusted diluted earnings per share for the full year fiscal 2012, excluding the impact of charges related to the Company’s cost optimization program, is expected to be towards the low end of the previously guided range of $5.25-$6.00.

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