Research In Motion (RIMM) reported its fiscal first-quarter earnings last night and missed consensus at both the revenue and the EPS line. More important, while revenue guidance is above that of the Street, EPS guidance is a clear disappointment.
Revenue In the quarter was $2.24 billion (+107% year over year; +19% sequentially) and EPS was 84 cents. Gross margin was 50.7%, down 110 basis points from last year and 70 basis points sequentially on slightly lower ASPs ($341 vs. $348 in the fiscal fourth quarter). Operating margin was 28.8%, up 260 basis points year over year but a decline of 120 basis points quarter over quarter due to higher operating expenses in excess of prior guidance. Cash from operations was particularly weak at only $6 million vs. more than $225 million last year, due largely to a Canadian tax payment. The cash account declined as well by about $225 million to just under $1.4 billion. Accounts receivable gained $250 million but days sales outstanding were only up 1 day to 57 days. Inventory was up slightly (+$65 million) and days of inventory decreased 1 day to 38 days. Channel inventory was characterized as "up slightly".
The company shipped 5.4 million handset units (+125% over the year-ago period; +23% sequentially) with activations up to 4.2 million. That pushed the ratio up to 1.29 versus the 1.13 last quarter. We have seen this metric spike in the past, and it has generally preceded a strong push from the channel, but the bears will jump on it as a sign of a problem.
International revenue was said to be about 33% of total, which suggests about $740 million (+128% year over year; +19% over the previous quarter). Latin America and the U.K. were highlighted as being especially strong but there were no comments relative to China specifically. The company added 2.31 million new subscribers, up 98% over the same period last year and 6% sequentially in the quarter, and non-enterprise-based sales were said to be about 50% of the new subscribers.
At time of publication, the Telecom Connection 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.Interested in more writings by Bob Faulkner? Check out his newsletter, TheStreet.com The Telecom Connection. For more information, click here.
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