RIM Q4 Earnings Preview: Increased Competition, But Positive Sign Emerges

RIM (RIMM) is expected to report its 4Q12 earnings on March 29th. The Street expects the company to earn $0.82 per share on $4.55 billion in revenue, and guide $4.29 billion in revenue for 1Q13. The management guided 11 - 12 million unit shipment for the quarter.

In Q3 RIM reported:

• Revenue: $5.2 billion, down 6.6% y/y
• Gross margin: 27% compared to 44% a year ago
• EPS: $0.51 per share, down 70% y/y
• Subscriber: 75 million, +35% y/y
• Blackberry shipment: 14.1 million
• PlayBook shipment: 150,000
• Cash flow from operation: $895 million
• Total cash: $1.5 billion

For Q4, investors can expect results to be at the low-end of the guidance due to continued deterioration of BB7 sales and increased competition from Apple (AAPL) and Google (GOOG).

Market share continues to be challenged by rivals

According to ComScore, RIM continues to lose market share in the mobile OS platform to rival Google and Apple in the US.

With the exception of enterprise sales, consumers continue to defect to iPhone 4S and Samsung. RIM's high-end segment could see continued weakness with the anticipated launch of the next generation iPhone this summer, which is well ahead of the BB10 launch in Q3.

Despite solid performance in Asia, competition in the low-end segment is also heating up from Chinese vendors such as Huawei and ZTE. At the Mobile World Congress in Barcelona, both Huawei and ZTE introduced entry-level models that are priced 15-20% below competitors in an attempt to gain traction in the smartphone market. This initiative could severely undermine RIM's growth prospect in the region.

However, positive sign is emerging from the US side.

According to ComScore, US subscriber base is stabilizing. In the data released on March 9th, US subs numbered 15.4 million at the end of January and the figure has been stabilizing above 15 million over the past four months. This could indicate that the majority of defectors to other platforms has been priced in and that the current subscriber number consists of RIM's core user base.

In Q3, RIM added 20 million subscribers globally after losing 5 million in the US. If the US subs can continue to stabilize and the rest of the world continues to show positive momentum in subscriber adds, then this allows room for upside surprises in the future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.