[Homo Erectus]

Amidst increasing optimism about some kind of turnaround at Research in Motion (RIMM) based on its forthcoming “BB10” operating system for the BlackBerry, Tavis McCourt with Raymond James this evening offered up what he calls a “sensitivity analysis” of what BB10 sales could do for the company’s business.

McCourt, who has a Market Perform rating on RIM stock, is modeling a net loss per share for RIM in the fiscal year ending this coming February of $1.72, on a GAAP basis, which is slightly better than the $1.99 net loss the Street is modeling, on average. That’s based on expected sales of $11.07 billion, which is in line with Street expectations.

For fiscal 2014 ending in February of that year, he’s modeling $12.214 billion and a net loss of $1.31, which is better than the consensus for revenue of $11.3 billion, but worse than the consensus for a GAAP net loss of 45 cents.

McCourt ponders what it would take in BB10 sales to reach breakeven for RIM, and comes up with a target of 18 million units in fiscal 2014. Anything below that and RIM has a net loss, anything above that and RIM has a net profit, he believes.

McCourt makes several assumptions, including that the average price of older BlackBerrys, falls to $180, and that gross margin is negative on those units.

He assumes, conversely, that BB10 will have a higher average selling price, at $375 per unit, and a gross margin of 30 million. McCourt is assuming services revenue in 2014 of $3.9 billion, and operating costs of $4.05 billion.

McCourt has a base assumption of 24 million units of the existing BlackBerry 7 units being sold next year, down from 31.7 million this year, as the older equipment is cannibalized by BB10 and competition from Android-based devices.

Here’s McCourt’s analysis for just the BB10 volumes in fiscal 2014:



As far as how McCourt rates RIM’s chances, he sees the company up against the challenge that Apple (AAPL) and Samsung Electronics (005930KS) currently own most of the smartphone profits, making it tough for the also-rans to make money. And Nokia‘s (NOK) performance so far with Microsoft‘s (MSFT) Windows Phone on its Lumia smartphones is not encouraging, he thinks:

Essentially, Apple and Samsung have developed massive scale economics in smartphones, and this is leading to outsized operating margins for these two vendors. However, none of the other competitors have reached that level. It appears that one needs to sell well over 30 mln smartphones annually in order to reach sustainable profitability. Because RIM owns its own OS, perhaps it does not quite require the 30 mln or so smartphone sales to reach profitability that Android partners appear to require, but even getting to 18 mln is no easy task [...] To put the challenge ahead for RIM in perspective, Nokia has tried to help launch a new OS to the world, and in the first year it has sold roughly 10 mln devices, at an average ASP we suspect is well below $300 and at gross margins that are flattish at best. This has included substantial marketing support from carriers and from Microsoft, and although RIM can probably count on marketing support, it does not have a deep-pocketed OS partner to lean on.

McCourt’s note follows an upgrade late Wednesday by National Bank Financial’s Kris Thompson, based on the prospect of higher BlackBerry sales in 2013, and an upgrade by Jefferies & Co.’s Peter Misek on Tuesday based on what he considers a better risk-reward ratio of late on the chances of a BB10 success next year.

RIMM: Target 18M BB10 Units for Profit in FY14, Says Raymond James - Tech Trader Daily - Barrons.com

[morganplus8]

These numbers are worth having a look at:

He is projecting 24 million BB 7 phones and 18 million BB 10 phones will be sold in Fiscal 2014 for RIM break even. Let's compare our current situation for Fiscal 2013, the one we are in now, we had Q4 of Fiscal 2012 go out at 14 million, Fiscal 2013 Q1 at 10.5 sell-though and Q2 - 2013 at 10.4 for sell-though. I use sell-though because it is the actual number of BB's sold during that period and not just the number that RIM shipped during each quarter. RIM will actually be shipping far more phones as carriers are currently without BB inventory.

The total sell-though for 2013 looks like it will come in around 42 million units and so we have a projection here of about the same number of units with new phones commanding a 40% share. How is it possible that RIM will launch 6 phones with the latest technology, a huge advertising program, and a media frenzy around the launch and still only do as well as a year where there is no advertising and no hype along with no new products?

Can someone explain to me how it is possible to achieve nothing in 2014 when we are launching 6 new phones??

My personal take on this is that BB 7 numbers won't be quite as high as 24 million but I truly believe that BB 10 will sell well in excess of 30 million phones. This will be at a much higher margin than this guy thinks as demand will support margins. RIM will roll a ton of phones into Enterprise and consumers will jump all over one of those 6 offerings.

Further, the US market penetration is at zero right now, to suggest that in 2014 no one in the US will buy one of those 6 phones is pure craziness!! (Is that a word?)

I also believe that there are a ton of BB users who don't use BBM and are simply transferring their SIM card into a BB handset for now, and they will upgrade to the new BB 10 series. This is a market that goes under the radar so to speak, they use a BB but their aren't included in stats.

If 18 million units is our benchmark for next year look for RIM to have a stellar year starting with the launch date and Q1 2014.

[playbookster]

There is a lot of pent up demand for bb10. A lot of bb6 users held off on upgrading to bb7 because they knew bb10 was in the pipeline.. Like me.

Sent from my BlackBerry 9800 using Tapatalk

[njblackberry]

There is a lot of pent up demand for bb10.

Sources? One doesn't constitute "a lot". It is one.

[playbookster]

Sources? One doesn't constitute "a lot". It is one.

Its common sense. What do you think blackberry fans are/were more excited about.. Bb7 or bb10?

[skyrocket9]

You make money by selling new consumers devices, not selling new devices to old customer's.

[howarmat]

These numbers are worth having a look at:

He is projecting 24 million BB 7 phones and 18 million BB 10 phones will be sold in Fiscal 2014 for RIM break even. Let's compare our current situation for Fiscal 2013, the one we are in now, we had Q4 of Fiscal 2012 go out at 14 million, Fiscal 2013 Q1 at 10.5 sell-though and Q2 - 2013 at 10.4 for sell-though. I use sell-though because it is the actual number of BB's sold during that period and not just the number that RIM shipped during each quarter. RIM will actually be shipping far more phones as carriers are currently without BB inventory.

The total sell-though for 2013 looks like it will come in around 42 million units and so we have a projection here of about the same number of units with new phones commanding a 40% share. How is it possible that RIM will launch 6 phones with the latest technology, a huge advertising program, and a media frenzy around the launch and still only do as well as a year where there is no advertising and no hype along with no new products?

Can someone explain to me how it is possible to achieve nothing in 2014 when we are launching 6 new phones??

My personal take on this is that BB 7 numbers won't be quite as high as 24 million but I truly believe that BB 10 will sell well in excess of 30 million phones. This will be at a much higher margin than this guy thinks as demand will support margins. RIM will roll a ton of phones into Enterprise and consumers will jump all over one of those 6 offerings.

Further, the US market penetration is at zero right now, to suggest that in 2014 no one in the US will buy one of those 6 phones is pure craziness!! (Is that a word?)

I also believe that there are a ton of BB users who don't use BBM and are simply transferring their SIM card into a BB handset for now, and they will upgrade to the new BB 10 series. This is a market that goes under the radar so to speak, they use a BB but their aren't included in stats.

If 18 million units is our benchmark for next year look for RIM to have a stellar year starting with the launch date and Q1 2014.

the thing is BB10 phones are not going to be cheap. Off contract 500-700 and on contract 200-300 probably. The reason you get lots of BB sales now is the low end curves and what not in nations where they cant afford expensive devices. IMO this is why you will still have strong BB7 sales and why bb10 isnt going to sell more.

[Dapper37]

You make money by selling new consumers devices, not selling new devices to old customer's.

A phone sale is a phone sale. good chance the old phone goes into the hands of another customer = more revenue. Better chance the new sale never went to the competition. So whats your point?

[skyrocket9]

A phone sale is a phone sale. good chance the old phone goes into the hands of another customer = more revenue. Better chance the new sale never went to the competition. So whats your point?

If you have to ask what my point is you have no idea how profits work.

[Superfly_FR]

If you have to ask what my point is you have no idea how profits work.

@inthemix ... and you may need to upgrade your knowledge about acquisition costs and brand strategy.
Roughly, when a loyal customer renews, it's a 10 base cost. To acquire a new one, its a 100 base: 1 to 10.
RIM's current strategy is based on several steps; #1 being converting current clients to BB10 to help promotion and decrease acquisition costs ("word of mouth" is free promotion). This will additionally generate revenues that will finance marketing actions (wide sense : incentives, communication, advertising); remember they have to maintain their available cash level as high as possible.
This is a very accurate and prudent approach; even if BB10 is not as successful as expected, they can handle a round 2.

Finishing the whole course before sating your (partial) knowledge is a good way to stand credible ...

[Skeevecr]

You make money by selling new consumers devices, not selling new devices to old customer's.

While you need to expand your market by selling to new customers, if you can get your existing customers to upgrade regularly to a new phone from you then that is almost a licence to print money and one of the reasons why Apple became so strong as they trained their customers to at least upgrade every two years unlike some blackberry users who held onto older models for dear life at times it seemed.

[Superfly_FR]

These numbers are worth having a look at:

He is projecting 24 million BB 7 phones and 18 million BB 10 phones will be sold in Fiscal 2014 for RIM break even. Let's compare our current situation for Fiscal 2013, the one we are in now, we had Q4 of Fiscal 2012 go out at 14 million, Fiscal 2013 Q1 at 10.5 sell-though and Q2 - 2013 at 10.4 for sell-though. I use sell-though because it is the actual number of BB's sold during that period and not just the number that RIM shipped during each quarter. RIM will actually be shipping far more phones as carriers are currently without BB inventory.

The total sell-though for 2013 looks like it will come in around 42 million units and so we have a projection here of about the same number of units with new phones commanding a 40% share. How is it possible that RIM will launch 6 phones with the latest technology, a huge advertising program, and a media frenzy around the launch and still only do as well as a year where there is no advertising and no hype along with no new products?

Can someone explain to me how it is possible to achieve nothing in 2014 when we are launching 6 new phones??

My personal take on this is that BB 7 numbers won't be quite as high as 24 million but I truly believe that BB 10 will sell well in excess of 30 million phones. This will be at a much higher margin than this guy thinks as demand will support margins. RIM will roll a ton of phones into Enterprise and consumers will jump all over one of those 6 offerings.

Further, the US market penetration is at zero right now, to suggest that in 2014 no one in the US will buy one of those 6 phones is pure craziness!! (Is that a word?)

I also believe that there are a ton of BB users who don't use BBM and are simply transferring their SIM card into a BB handset for now, and they will upgrade to the new BB 10 series. This is a market that goes under the radar so to speak, they use a BB but their aren't included in stats.

If 18 million units is our benchmark for next year look for RIM to have a stellar year starting with the launch date and Q1 2014.

+1
Am I the only one to add PlayBook (running BB10) to these figures ?
I believe this could add a few million(s) unit.

[Skeevecr]

Roughly, when a loyal customer renews, it's a 10 base cost. To acquire a new one, its a 100 base: 1 to 10.
RIM's current strategy is based on several steps; #1 being converting current clients to BB10 to help promotion and decrease acquisition costs ("word of mouth" is free promotion). This will generate revenues that will finance marketing actions (wide sense : incentives, communication, advertising); remember they have to maintain their available cash level as high as possible.
This is a very accurate and prudent approach; even if BB10 is not as successful as awaited, they can handle a round 2.

Personally, I would expect one of Rim's targets for sales would be to convert the vast majority of their current 80m userbase over to bb10 within the first two years of bb10 availability and to encourage a more regular upgrade cycle once they have moved, doing this would make them safer in the short-term and enable them to push on further and increase their market share by luring back former bb users and winning over people that are entirely new to blackberry too.

[njblackberry]

You're kidding about the Playbook, right?
It is dead. It hasn't sold anything in the past 6 months. With the iPad Mini out, why would you expect the Playbook to suddenly sell? It is damaged goods.

[Superfly_FR]

You're kidding about the Playbook, right?
It is dead. It hasn't sold anything in the past 6 months. With the iPad Mini out, why would you expect the Playbook to suddenly sell? It is damaged goods.

I'm not kidding any second. PlayBook LTE/3G+ under BB10 is a Porsche under Nitro.

[njblackberry]

Personally, I would expect one of Rim's targets for sales would be to convert the vast majority of their current 80m userbase over to bb10 within the first two years of bb10 availability and to encourage a more regular upgrade cycle once they have moved, doing this would make them safer in the short-term and enable them to push on further and increase their market share by luring back former bb users and winning over people that are entirely new to blackberry too.

Problem with expecting the "vast majority" to upgrade is that most of RIMs sales in the last year are lower end (read: cheap) models in emerging markets. Why would you expect them to upgrade to an expensive brand new model?

[njblackberry]

I'm not kidding any second. PlayBook under BB10 is a Porsche under Nitro.

It's a Porsche sitting on blocks in your garage. It's dead.

[Skeevecr]

+1
Am I the only one to add PlayBook (running BB10) to these figures ?
I believe this could add a few million(s) unit.

I don't think we will see a rush from them to bring out a new bb10 playbook, the tablet market is split between the ipad and the commodity-priced android tablets like the kindle fires or the nexus 7 and I cannot see them being confident enough to go with ipad pricing or feel any benefit to low-end pricing when if they were going for any lower-priced options those would be bb10 curves where there volumes would at least make up for reduced margins unlike the near-zero margins on tablets.

[njblackberry]

And RIM doesn't get any revenue from Playbook month to month as it doesn't require a data plan or use their network.
It's a dead 7" tablet in a crowded market.

They tried iPad pricing. Only idiots (like me) bought a 64GB Playbook on day one at full price.

[Superfly_FR]

Personally, I would expect one of Rim's targets for sales would be to convert the vast majority of their current 80m userbase over to bb10 within the first two years of bb10 availability and to encourage a more regular upgrade cycle once they have moved, doing this would make them safer in the short-term and enable them to push on further and increase their market share by luring back former bb users and winning over people that are entirely new to blackberry too.

Agree, but ... 2 years is approx half way by the end of the recovery process (3-5 years said T. Heins). It is important to keep this deadline in mind.

[Superfly_FR]

And RIM doesn't get any revenue from Playbook month to month as it doesn't require a data plan or use their network.

Neither do iPads or Androids or WM ... so what's the difference ?
Do you ommit the new LTE/3G+ PlayBook models ?

[Skeevecr]

Problem with expecting the "vast majority" to upgrade is that most of RIMs sales in the last year are lower end (read: cheap) models in emerging markets. Why would you expect them to upgrade to an expensive brand new model?

Firstly, this whole emerging markets stuff is highly over-stated and actually quite insulting in some ways, just because they are dead in the states right now does not mean the same is true elsewhere and as far as them only selling the cheap models it is also stuff like the 9900 and the 9790 that are doing well in a lot of places.

Initially they will be going after their more affluent users with these higher end models, but within the year they will obviously start to make in-roads on the mid and lower end models too with some choosing to go with a dearer model if they see the benefits or with a bb10 curve if that is enough for them.

[Superfly_FR]

I don't think we will see a rush from them to bring out a new bb10 playbook, the tablet market is split between the ipad and the commodity-priced android tablets like the kindle fires or the nexus 7 and I cannot see them being confident enough to go with ipad pricing or feel any benefit to low-end pricing when if they were going for any lower-priced options those would be bb10 curves where there volumes would at least make up for reduced margins unlike the near-zero margins on tablets.

"a mobile platform" : haven't you heard this each and every time T. Heins is expalining what BB10 is about ?
How could they repeat this without heavily supporting PlayBook ?
As ipad+ iPhone or WP8 and W8, this can't be a suitable perspective to abandon tablet market.

[njblackberry]

The LTE Playbook? The one that RIM didn't market, didn't make available through carriers and barely sold.
No, I didn't forget it. RIM forgot about it.

Apple and "Android" don't survive on their monthly revenue model. Those dedicated 80mm BB customers pay a monthly fee. Apple thrives on their application model and huge payments from carriers. Androids thrive on their sheer volume.

THAT'S THE DIFFERENCE.

[Skeevecr]

Do you ommit the new LTE/3G+ PlayBook models ?

I think the sales of that model will all pretty much everyone to omit that one from any calculations since they would amount to little more than a rounding error in the grand scheme of things.