RIM Is Getting Demolished

Business Insider

Research In Motion has been down as much as 17.9% this morning.

The stock recovered slightly, and now it's down 13% after last night's earnings report.

This is the biggest one-day drop since June 29. Which, it just so happens, was the day after it reported earnings and announced 5,000 jobs would be cut.

Last night's earnings report safely beat expectations on the top and bottom line.

But on the earnings call, CEO Thorsten Heins put a scare in the market by saying the company's services revenue could be at risk.

RIM generated $982 million in service fees, which is "high-margin revenue" revenue, according to Bloomberg.

During the call, Heins said, "Subscribers that require enhanced services, including advanced security, mobile device management and other services, are expected to continue to generate monthly service revenue. Other subscribers who do not utilize such services are expected to generate less or no service revenue."

This has investors thinking RIM is about to lose a big chunk of valuable revenue as it rolls out BlackBerry 10, its new operating system.

For what it's worth, Pierre Ferragu at Bernstein thinks people are misunderstanding what could happen to RIM's service fees Heins.

In a note he says that there are two ways BlackBerry 10 plays out:

  1. BlackBerry 10 is a dud at launch, and everyone sticks with BlackBerry 7. In that case, RIM collects the same service fees. He says, "We note Blackberry’s service revenues have remained stable over the last few quarters, beating all expectations and despite the collapse of shipments."
  2. BlackBerry 10 is a hit. In that case, service fees drop, but who cares? BlackBerry 10 is a hit! And the stock will soar anyway.

Anyway, here's the exact language that has the market spooked, via Seeking Alpha:

With the introduction of the BlackBerry 10 mobile computing platform, we will be transforming our service revenue model to reflect different usage levels of our network infrastructure and different value-added software security and service packages. So we plan to offer a range of security, mobile device and application management services in addition to communication services. We will position BlackBerry Enterprise service as the leading cross-platform enterprise mobile device management service and continue to invest in growth capabilities.

Subscribers that require enhanced services, including advanced security, mobile device management and other services, are expected to continue to generate monthly service revenue. Other subscribers who do not utilize such services are expected to generate less or no service revenue. However, I want to be very clear on this. Service revenues are not going away, but our business model and service offerings is going to evolve. Our vision is to position BlackBerry as the clear leader in the enterprise mobility market. While the mix and level of service fees revenue will change going forward and will be under pressure over the next year during this transition, but we are targeting to grow service revenue in smartphones, tablets and embedded application to a new offering with new partners and across platforms other than BlackBerry 10. We're making these changes to meet the competitive dynamics of the marketplace but more importantly, to allow us to pursue the broad opportunities in mobile computing that BlackBerry 10 and our infrastructure enables us to do.



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