RIMM Preview: All Eyes on the Outlook

Research In Motion (RIMM - commentary - Cramer's Take) will announce its third-quarter results after the close tonight. Current consensus estimates are for revenue to be $2.83 billion (up 69% year over year and 6% quarter over quarter), with pro forma EPS of 81 cents, but the company's pre-announcement on Dec. 3 took all the fun out of it.

In the prior quarter, revenue was $2.58 billion (up 88% year over year and 15% quarter over quarter), with GAAP EPS of 84 cents. The gross margin was 50.7%, down 60 basis points from last year but essentially flat with the first quarter. The operating margin was 27.2%, down more than 100 basis points on a year-over-year and quarter-over-quarter basis, as the company continued to ramp up its "investments."

Cash from operations jumped dramatically in the quarter to $586 million, enabling the company to add about $200 million to its cash position. Accounts receivable increased about $340 million, pushing days sales outstanding to 62 days, up from last year and the prior quarter. Inventory increased about $60 million, but days of inventory declined by two days, to 36 days.

Generally speaking, sales were good, with 6.1 million units having shipped in the quarter, an increase of nearly 100% from the prior year. New activations did decline slightly to 2.6 million vs. 2.7 million in the prior year. This may have been the result of people waiting for the Bold and/or Storm products.

The original guidance on the last conference call anticipated that revenue would be well above Street consensus at that time, but the company was forced to preannounce on Dec. 3. Revenue is now expected to be in a range of $2.75 billion to $2.78 billion, or up 64% to 66% year over year vs. original guidance of $2.95 billion to $3.10 billion. The gross margin is now thought to be in the 45% to 46% range vs. 47% originally. While no guidance was provided for operating expenses, pro forma EPS are expected to be 81 cents to 83 cents, down from the prior 89 cents to 97 cents. Lastly, new subscribers were also ratcheted down to 2.6 million from the original estimate of 2.9 million.

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At the time of publication, Faulkner had no positions in the stocks mentioned, but The Telecom Connection model portfolio was long Research In Motion.

Bob Faulkner has been in the investment business for 18 years with an exclusive focus on technology stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Faulkner appreciates your feedback; click here to send him an email.

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