02-18-09 02:14 PM
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  1. Hawse771's Avatar
    Without starting a flame war since the last thread got closed before I got to answer all of the great questions flung out by the "market analysts" on this forum.

    First...we can agree RIM got more subcribers then expected correct? We can agree they sold a lot of storms correct?

    Now..we are trying to find out why their profit margins shrunk...and people are assuming its because of some high return rate...

    Lets think about this for a second...how many people bought the storm for $99-$199? Kevin released a breakdown that showed the cost of a storm was what $203?

    Take a deep breath..let go of the storm hate and think about that for a second. The more Storms they sell for 99-199 how is this going to effect their profit margins on the front end? *hint its going to go down*

    Fast forward 6months to a year after they have collected all the extra money from data plans etc...its going to go up! Imagine that..a company that thinks LONG TERM and isnt expecting a huge boost in profits instantly from the sale of the phone.

    Look at how much Apple charged for the iphone initially...if they had started out charging 199 they wouldn't have made as much off the bat.

    Think about a furniture place doing 0% interest and no payments for 12 months...thousands of people run out and buy furniture..what do you think their profit looks like for the next 12 months?...down until they start collecting payments for the furniture. Not the best analogy but try and think outside the box here.

    Analysts are a dime a dozen now-a-days..and guess who employs a lot of them..citi, wachovia...chase..bofa...merrill...look where these companies are and think about how much you want to trust anything that comes from their mouth? If they were good at their job (and not just guessing) wouldn't their companies have analyzed their own mess by now?

    Please keep flames and personal attacks to a minimum, if you have a serious question ask but dont assume that you know everything about stocks and can pinpoint some dip in RIM's stock to the storm because you read an article
    02-16-09 10:54 PM
  2. Hawse771's Avatar
    Oh..and here's an interesting article that was released before the storm saying that their profit margins would be down the next few quarters due to branching out and releasing newer models that were more expensive to build.

    RIM shares tank on lower profits for new BlackBerrys | Wireless - CNET News
    02-16-09 11:05 PM
  3. jdoc77's Avatar
    There are 3 distinct things to talk about in my post.

    I think the exact quote you are looking for from the original article is...

    1. "But the real shocker is that despite adding as many as 3.5 million new subscribers -- 20% more than expected in the quarter -- gross margins would narrow to 40%. [several points lower than they expected even factoring in the known economic slump]"

    In other words, they increased customers ABOVE expectations and decreased profits BELOW expectations. In other words, in-spite of its greater than average "sales" it had record "profit loss". Not the same thing as saying that the storm costs are "sunk costs" or that the entire economy is suffering so RIM is suffering commensurately.

    2. I've already used the "land grab" analogy elsewhere, and frankly I think it makes good business sense. I used to work in middle management for a 100 million dollar company that expanded so rapidly at one point, the owners took out property liens to make payroll for a few months... several years later, they sold to a bigger company and all retired multi-millionaires...

    It was however THIS quote in the original article that caused all the stir...

    3. "Analysts were quick to blame the aptly named Storm for RIM's rocky ride."

    I have never claimed to know more about a subject than I do nor to be an expert except about things that we don't ever plan to talk about here... (I hope, lol) But, though I predicted that the "analysts" would be pooh-pooed for having a lack of insight... Is dismissing their analysis based on fact, opinion or emotion?

    I would say it's more the latter two than the former.

    I agree... let's debate the facts, and leave the flames and repetetive/useless posting/name calling for the Xbox Forums.
    02-16-09 11:40 PM
  4. Hawse771's Avatar
    There are 3 distinct things to talk about in my post.

    I think the exact quote you are looking for from the original article is...

    1. "But the real shocker is that despite adding as many as 3.5 million new subscribers -- 20% more than expected in the quarter -- gross margins would narrow to 40%. [several points lower than they expected even factoring in the known economic slump]"

    In other words, they increased customers ABOVE expectations and decreased profits BELOW expectations. In other words, in-spite of its greater than average "sales" it had record "profit loss". Not the same thing as saying that the storm costs are "sunk costs" or that the entire economy is suffering so RIM is suffering commensurately.

    2. I've already used the "land grab" analogy elsewhere, and frankly I think it makes good business sense. I used to work in middle management for a 100 million dollar company that expanded so rapidly at one point, the owners took out property liens to make payroll for a few months... several years later, they sold to a bigger company and all retired multi-millionaires...

    It was however THIS quote in the original article that caused all the stir...

    3. "Analysts were quick to blame the aptly named Storm for RIM's rocky ride."

    I have never claimed to know more about a subject than I do nor to be an expert except about things that we don't ever plan to talk about here... (I hope, lol) But, though I predicted that the "analysts" would be pooh-pooed for having a lack of insight... Is dismissing their analysis based on fact, opinion or emotion?

    I would say it's more the latter two than the former.

    I agree... let's debate the facts, and leave the flames and repetetive/useless posting/name calling for the Xbox Forums.
    Lol..the analysts are basically agreeing with me. Yes the storm is the cause of the profit shrinkage but NO it has nothing to do with extreme amounts of returns. RIM anounced this before the fact (september of 2008) so no one can claim that RIM knew they would have high return rates blah blah blah. The facts are they are building more expensive devices and having to sell them for less (due to competition and the economy) so they are relying on the long haul to make profits.

    Nothing more needs to be said...what you are seeing is analyst spin being put on things to try and create a buzz..there would be no excitement if they came out and said what was obvoius and logical like I just did. It's like politics, everyone has a side..or think of it like a movie review, its not interesting unless if they try and put some zing into it. Thats what analysts do, they rarely just report the numbers...the companies they work for normally have an interest (read money) in either the companies they talk about or the competitors to the companies they talk about.

    So lets look at it once again...RIM gives EVERYONE a warning that profits will be down for quarters to come due to new expensive devices...that happens and people get all riled up and claim its because of a faulty device..lol

    Maybe next time RIM should keep quite...oh and lowering forecasted earnings from .87 to .83 in this economy is far from anything bad..thats less then 5%. We have tons of companies who are tanking 30-40% in quarterly profits if not more
    02-16-09 11:47 PM
  5. jdoc77's Avatar
    I agree with pretty much all of your analysis about making it a better story to include the info about the storm.

    However, -I- was never making the case that RIM is in a bad financial position. Quite the opposite. I happen to agree with the "land grab" philosophy of business. You must be first, faster or fail. That is a decent mantra, and RIM is doing just that. They weren't first to the touch-screen, but they are now fastest to the market with "the next big thing".

    Again though, you are elegantly dancing around the point that they had greater than predicted INFLUX of capitol (subscribers) and simultaneous greater than predicted loss of profit.

    Factoring out the economy, it still shows that they were un-prepared for what happened. That is all. No more analysis needs to be done on that point either.

    I've gone way beyond trying to find faults with the Storm or trying to blame it for RIM's problems.

    However, the huge disagreement seems to be on what exactly caused the discrepancy. The Storm is a likely candidate. You can't deny it, but I'm sure you will try.

    Anyway... time for bed. On call tomorrow. Nite!
    02-16-09 11:58 PM
  6. Hawse771's Avatar
    I agree with pretty much all of your analysis about making it a better story to include the info about the storm.

    However, -I- was never making the case that RIM is in a bad financial position. Quite the opposite. I happen to agree with the "land grab" philosophy of business. You must be first, faster or fail. That is a decent mantra, and RIM is doing just that. They weren't first to the touch-screen, but they are now fastest to the market with "the next big thing".

    Again though, you are elegantly dancing around the point that they had greater than predicted INFLUX of capitol (subscribers) and simultaneous greater than predicted loss of profit.

    Factoring out the economy, it still shows that they were un-prepared for what happened. That is all. No more analysis needs to be done on that point either.

    I've gone way beyond trying to find faults with the Storm or trying to blame it for RIM's problems.

    However, the huge disagreement seems to be on what exactly caused the discrepancy. The Storm is a likely candidate. You can't deny it, but I'm sure you will try.

    Anyway... time for bed. On call tomorrow. Nite!
    I am not dancing around that point at all..I'm saying they are LINKED..the more subscribers upfront the bigger hit their profit takes upfront..they expected less subscribers so they expected it to have LESS of an impact on their profit. They were wrong..more people signed up, so they sold MORE of the expensive phone then they thought..so they lost more money on it upfront then they anticipated..bad for short term but great for long term. How is that dancing around the subject..i think you're just not reading what I'm saying.

    I'll put it in terms of something simple...Lets say company A offers 3 products, the first has a profit margin of 10%, the 2nd 15% and the 3rd 20%...they think they will initially sell 100 of each...but in the end they end up selling 200 of product 1 at 10% along with 100 of the other 2...they were caught off guard, and this in turn would LOWER their profit margins but INCREASE new subscribers. Pretend the Storm is the 10% Bold is 15% and Curve is 20% if it helps at all..obviously the numbers are way off but I'm trying to make a simple point here. For every new storm subscriber they are taking a hit upfront because people are getting the phone for cheap and the phone was far from cheap to build as already evidenced (factor in all the marketing costs yada yada).
    02-17-09 12:08 AM
  7. kuroshio's Avatar
    Think part of the explanation, if the drop in profit margin is Storm-related, was in the orginal article posted in the other thread.

    To keep supplies up with demand, RIM has had to strike deals with its manufacturing partners to insure quicker production. These high-priority requests are also higher-cost, according to one Wall Street analyst who is familiar with the production push. RIM has also had to pay for rush shipments of parts to keep production from slowing. These priority shipments also incur more costs, the analyst says.

    Personally, I think RIM's product line is too diversified for any one phone to affect their profit margin that much. There's probably a lot more in their books to explain things better. Increased R&D costs for something we don't know anything about yet? Increased personnel costs as they spread existing phones across different carriers? The CxOs indulging in more martini mixers (or keggers, being Canadian)?
    02-17-09 12:21 AM
  8. cereal killer's Avatar
    So just so we are all clear and on the same page.

    The analyst really has no clue what he's talking about and you (Hawse) and Kuroshio have a better handle on the stock issue?

    Posted from my CrackBerry at wapforums.crackberry.com
    02-17-09 12:41 AM
  9. Hawse771's Avatar
    So just so we are all clear and on the same page.

    The analyst really has no clue what he's talking about and you (Hawse) and Kuroshio have a better handle on the stock issue?

    Posted from my CrackBerry at wapforums.crackberry.com
    lol, go back to threads where you can spew your anti storm propaganda..this subject is obviously way beyond your intellect. Get back to hitting the bong.

    I have provided a very simple and logical explanation BACKED by RIM and announced BEFORE the release of the storm..carry on trolling
    02-17-09 12:44 AM
  10. kuroshio's Avatar
    So just so we are all clear and on the same page.

    The analyst really has no clue what he's talking about and you (Hawse) and Kuroshio have a better handle on the stock issue?

    Posted from my CrackBerry at wapforums.crackberry.com
    Troll Post

    K? Thnx! Buh-Bye!
    02-17-09 12:52 AM
  11. cereal killer's Avatar
    However, the huge disagreement seems to be on what exactly caused the discrepancy. The Storm is a likely candidate. You can't deny it, but I'm sure you will try.
    I just wanted to reiterate this point Hawse and Kuroshio.

    Ill leave you 2 alone now.

    Goodnight............

    Posted from my CrackBerry at wapforums.crackberry.com
    02-17-09 01:07 AM
  12. Hawse771's Avatar
    I just wanted to reiterate this point Hawse and Kuroshio.

    Ill leave you 2 alone now.

    Goodnight............

    Posted from my CrackBerry at wapforums.crackberry.com
    As usual you contribute nothing to a discussion, have a goodnight...
    02-17-09 01:10 AM
  13. kuroshio's Avatar
    I just wanted to reiterate this point Hawse and Kuroshio.

    Ill leave you 2 alone now.

    Goodnight............

    Posted from my CrackBerry at wapforums.crackberry.com
    Troll another thread. I'd like to hear jdoc's response, not get this thread locked because people start arguing with you
    02-17-09 01:17 AM
  14. jdoc77's Avatar
    I am definitely understanding the idea of sunk cost and up front capitol... as in, the storm costs more to make than Verizon is selling it for... but I'm thinking that this would explain a discrepancy in accounting for Verizon if there was one, not for RIM.

    Unfortunately, (and I will have to look, and if the original $203 quote from Kevin talks about how RIM gets paid for it's phones, how much and by whom, I apologize) the article says nothing about how/why/ when RIM gets paid, all it says is that there was a discrepancy. The article steers completely clear of how RIM gets paid, but for some reason, I am thinking that they don't get retention kickbacks from the Carrier. Only some kind of arrangement where RIM gets extra cash at a later date for more "subscribers" as the article called them would explain how they make up for up-front sunk cost.

    Does it make sense that a manufacturer like RIM gets paid that way? I'm thinking no, but admitting I don't know.

    However, if they do, could a very high return/failure rate or a particular model explain how their "sales" could be up and their "projections" would be down based on record "sales."

    That seems logical too.
    02-17-09 07:38 AM
  15. BzB's Avatar
    a few people are showing an epic misunderstanding of business economics here.

    it comes down to this. rim forecasted sales of x amount of storms which would cost them x amount of dollars to produce.

    because demand outstripped their forecasted target they were forced to use different parts suppliers, increase manufacturing (likely at overtime hours), and rush shipping to retailers which all resulted in a higher cost to produce than they originally expected thereby eroding their profit margin.

    isn't that simple.

    edit - and yes the storm is the probably the main reason behind shrinking overall profit margin because of the record breaking of sales of that device in the rim product line.

    growth...especially fast and unexpected, always eats up on hand cash.
    Last edited by BzB; 02-17-09 at 08:59 AM.
    02-17-09 08:55 AM
  16. bigman2's Avatar
    You're also not accounting for the inevitable drop in production costs over time. It's a basic loss-leader marketing strategy, and game console makers have been using it for years. It costs Sony and Microsoft a lot more to make a single PS3 or Xbox 360 than you pay retail. They swallow this loss hoping to make it up on the back end with software sales in the form of games, and also accessories. Eventually production costs will fall sufficiently that they will start making a small profit on every machine sold, but that's usually only in the last 1-2 years of the console's lifespan, and they've already moved on to the next one. Well, assuming Microsoft doesn't just drop the 360 like they did the original Xbox.

    The same applies to RIM and the Storm. Right now, production costs are at their highest, but this time next year it will be lower, and then a year after that, even lower. At this point, RIM can probably crank out Curve's at dirt cheap rates compared to when it launched.

    And with the economy as a whole tanking worldwide, thanks to a few greedy assholes who gamed the system too much, everyone's probably dumping stock so they can have actual money in the bank, not fictional money that only exists when they sell their stock. Stock markets are all about perception, and by the time reality comes along, they've already moved on to some new rumor or speculation.
    02-17-09 09:06 AM
  17. asmallchild's Avatar
    You're also not accounting for the inevitable drop in production costs over time. It's a basic loss-leader marketing strategy, and game console makers have been using it for years. It costs Sony and Microsoft a lot more to make a single PS3 or Xbox 360 than you pay retail. They swallow this loss hoping to make it up on the back end with software sales in the form of games, and also accessories. Eventually production costs will fall sufficiently that they will start making a small profit on every machine sold, but that's usually only in the last 1-2 years of the console's lifespan, and they've already moved on to the next one. Well, assuming Microsoft doesn't just drop the 360 like they did the original Xbox.

    The same applies to RIM and the Storm. Right now, production costs are at their highest, but this time next year it will be lower, and then a year after that, even lower. At this point, RIM can probably crank out Curve's at dirt cheap rates compared to when it launched.

    And with the economy as a whole tanking worldwide, thanks to a few greedy assholes who gamed the system too much, everyone's probably dumping stock so they can have actual money in the bank, not fictional money that only exists when they sell their stock. Stock markets are all about perception, and by the time reality comes along, they've already moved on to some new rumor or speculation.
    Very eloquently put!
    02-17-09 09:15 AM
  18. kuroshio's Avatar
    I'm sure the increase in production costs to meet higher than expect deman of the Storm is a factor. I'm not sure that's the sole cause.

    There is the global economy in effect, for one thing. In a healthy economy, a manufacturer announcing higher than expected sales of a new product would normally see their stocks go up as latecomers try to squeeze a few dollars out of their success. But as someone else said, people are dumping their stocks to have actual dollars in the bank. Especially those who got laid off.
    02-17-09 09:17 AM
  19. rmanaudio's Avatar
    cost price of a storm is $203??? Are you serious???

    The hardware cost them max...probably $20-$30!

    If you include software cost side...maybe another $20!

    There is no way it costs $203 for RIM to make each storm!

    The most expensive part on the storm is probaby the speaker at a wopping $3-$4!

    How I know this....I live in Toronto and have a couple of friends who went to University with a current RIM employee! Who wont even send me leaks the *******!
    02-17-09 09:20 AM
  20. Lightninrod's Avatar
    They were wrong..more people signed up, so they sold MORE of the expensive phone then they thought..so they lost more money on it upfront then they anticipated..bad for short term but great for long term.
    Doesn't VZW pay/subsidize RIM for the lower VZW sell price as AT&T does Apple for the iphone? If so, RIM wouldn't be selling them at a loss to VZW.
    02-17-09 09:22 AM
  21. asmallchild's Avatar
    cost price of a storm is $203??? Are you serious???

    The hardware cost them max...probably $20-$30!

    If you include software cost side...maybe another $20!

    There is no way it costs $203 for RIM to make each storm!

    The most expensive part on the storm is probaby the speaker at a wopping $3-$4!

    How I know this....I live in Toronto and have a couple of friends who went to University with a current RIM employee! Who wont even send me leaks the *******!
    Umm, it's been shown pretty extensively the Storm costs more than $200 to manufacture.
    02-17-09 09:22 AM
  22. backdown00's Avatar
    cost price of a storm is $203??? Are you serious???

    The hardware cost them max...probably $20-$30!

    If you include software cost side...maybe another $20!

    There is no way it costs $203 for RIM to make each storm!

    The most expensive part on the storm is probaby the speaker at a wopping $3-$4!

    How I know this....I live in Toronto and have a couple of friends who went to University with a current RIM employee! Who wont even send me leaks the *******!
    someone forgot all the overhead and labor costs
    02-17-09 09:51 AM
  23. rmanaudio's Avatar
    someone forgot all the overhead and labor costs

    Overhead and labor costs? Overhead is never included in the cost price of a product...labor costs...yes....but being how most of them are produced in Mexico...cant see it costing over $150 a storm!!!

    Im telling you....this is coming from someone who works at RIM....the cost of the storm is $20 to $30....i dont know if labor is included or not...but I will ask him.

    Do you guys know why the STORM has such a nice audio output? Because, the engineers who worked on it.....one of them...is a big audiophile guy and didnt want to go cheap....he could of went with a $0.60 speaker but said no to his boss and went with a $3 speaker! True story!
    02-17-09 10:05 AM
  24. asmallchild's Avatar
    Considering the processor itself is $35, I question your friend's math skills.

    iSuppli: BlackBerry Storm costs $4 more than its purchase price to build - Engadget

    If your friend was right, wouldn't RIM be properly situated to EXCEED earning estimates instead of falling short?
    02-17-09 10:09 AM
  25. rmanaudio's Avatar
    Considering the processor itself is $35, I question your friend's math skills.

    iSuppli: BlackBerry Storm costs $4 more than its purchase price to build - Engadget

    If your friend was right, wouldn't RIM be properly situated to EXCEED earning estimates instead of falling short?
    I dont know....I will talk to him again....but this is what he told me...you do realize that they buy everything in bulk by the millions and the price RIM gets is not the listed price. Those websites add up prices at retail price!

    I just cant see cost price of any BB being over $50...but I might be wrong.
    02-17-09 10:15 AM
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