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Research in Motion Ltd. has the hottest toy on the market. We're not talking about the latest BlackBerry smartphone, but its stock: speculators can't get enough of it. More than one-third of its shares were held by short-sellers as of mid-June. Many analysts who follow the company aren't much better, adding to the fog of speculation with questionable "channel checks" to assess the company's sell-through and month-by-month changes to their forecasts.
So it is little wonder the stock collapsed Friday as RIM reported a surprise first-quarter loss and warned of another to come in the second quarter. But are things all that bad?
There is a lot of noise in the report, including a revenue shortfall due to what appears to be a temporary foreign currency situation in Venezeula. Falling Playbook sales have led the company to pull the plug on any further investments in the dismal product, a welcome move. Meanwhile, the company acknowledged the highly competitive smartphone market makes it "difficult" to estimate unit sales, revenues and profits.
Amid all of this, investors need to remember two important points. The company is in turnaround mode and in a much better position than it was one year ago, when it delayed the launch of its BlackBerry 10 phone and cut 5,000 jobs. RIM shipped 6.8 million smartphones in the most recent quarter. That's down by 13 per cent compared to the same quarter last year. But remember, much of the decline represents a drop in demand for its older devices. Plus, the rate of decrease has slowed considerably: unit sales in last year's first quarter were down by about 40 per cent. Its $3.1-billion in cash is the highest level in three years. CEO Thorstein Heins has proven himself to be a shrewd, cost-conscious manager who seems less concerned by the quarter-to-quarter investor dog and pony show than rebuilding the company over the longer term. He has made RIM more agile and better able to react in its fast-changing industry.
The second point is that while RIM is talking up a lot of new initiatives – including a cheaper "Q5" Blackberry phone for emerging markets and the expansion of its popular BlackBerry Messenger service – everyone should be focused on one thing: How RIM's new Q10 phone, the one with its trademark tiny keyboard, fares in the U.S. The phone launched there after the June 1 closing date for the first quarter.
That means the most recent quarterly results should be largely disregarded by any serious, long-term investor making a bet on the company's prospects.
Unfortunately, the company has unwisely decided to withhold from investors two key pieces of data. After several quarters of declining subscriber numbers, the company will no longer disclose this measure. Mr. Heins defended the move Friday, saying the "revenue dynamic" from new devices is different from older ones, but it's a weak excuse. The company also won't break out sales between the BlackBerry 10 and older devices.
As a result, RIM is wilfully reducing transparency and hobbling the ability of investors to judge its performance over time, increasing uncertainty about its prospects. The speculators will love that.
Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights , and follow Sean on Twitter at @seansilcoff .
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Sean Silcoff