RIMM: Target 18M BB10 Units for Profit in FY14, Says Raymond James
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
- CrackBerry Genius
11-24-12, 11:03 AM #2
- 2,379 Posts
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.
- 11-24-12, 05:35 PM #3
RIMM: Target 18M BB10 Units for Profit in FY14, Says Raymond James
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
- 11-24-12, 07:46 PM #7
- 11-24-12, 08:13 PM #8
- 11-25-12, 06:35 AM #10
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 ...
Last edited by Superfly_FR; 11-25-12 at 06:05 PM.
- 11-25-12, 06:43 AM #11
- 11-25-12, 06:49 AM #13
- 11-25-12, 06:51 AM #16
- 11-25-12, 06:54 AM #18
- 11-25-12, 06:55 AM #19
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.
- 11-25-12, 07:01 AM #22
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.
- 11-25-12, 07:01 AM #23
- 11-25-12, 07:02 AM #24
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.
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