(RIMM) Research In Motion Misses Expectations – Outlook Strong

Yesterday after market close, Research In Motion Ltd. (RIMM) declared its fourth quarter fiscal 2010 financial results, which were below the Zacks Consensus Estimate. Consequently, its stock price was down $3.42 (4.62%) to $70.55 in after-market trade on Nasdaq.

Nevertheless, management provided a solid financial guidance for the ongoing first quarter of fiscal 2011, which may act as a silver lining for the stock in the near term.

Fourth quarter 2010 total revenue of $4.08 billion was up 18% year-over-year and 4% sequentially. However, the quarterly revenue was far below the Zacks Consensus Estimate of $4.30 billion. This was primarily due to lower BlackBerry device shipments of 10.5 million units compared to the average expectation of 11 million units.

RIMM claimed that the lower device shipment was due to inventory reduction by a major wireless service provider. Although BlackBerry still holds its market leadership position in the North American region, it seems the company is losing out to the iconic touchscreen smartphones of Apple Inc. (AAPL).

Fourth quarter net income was $710.1 million or $1.27 per share compared to a net income of $628.4 million or $1.10 per share in the prior-year quarter and a net income of $518.3 million or 90 cents per share in the previous quarter. However, the quarterly EPS of $1.27 was marginally below the Zacks Consensus Estimate of $1.28.

Average selling price in the fourth quarter was $311, well below the company’s previous prediction of $320. During the same quarter, RIMM added around 4.9 million net new BlackBerry subscribers, which raised the total BlackBerry subscriber base to over 41 million at fiscal-end 2010, up 65% year-over-year. For full fiscal 2010, BlackBerry device shipment also grew 40% year-over-year to 37 million units.

In the fourth quarter 2010, by segments, 80% revenue accounted for Device shipments, 16% for Services, 2% for Software, and the remaining 2% for Other revenue. Gross margin in the same quarter was 45.7% compared with 40% in the prior-year quarter. Quarterly R&D expenditure was $267.2 million, up 46.4% year-over-year. Quarterly Selling, General, and Administrative expenditure was around $498 million, up 22.4% year-over-year.

During fiscal 2010, RIMM generated approximately $3.04 billion of cash from operations compared with $1.5 billion in the previous fiscal year. Free cash flow (cash flow from operations less capital expenditure) in fiscal 2010 was over $1.6 billion compared with a negative $69.6 million in the previous fiscal.

At fiscal-end 2010, RIMM had approximately $2.9 billion of cash and investments and no outstanding debt on its balance sheet compared to $2.4 billion of cash and investments and no outstanding debt at the end of fiscal 2009.

Future Financial Outlook

RIMM is expecting that its first quarter of fiscal 2011 revenue will be within the range of $4.25 billion ? $4.45 billion. Gross margin will be around 44.5%. EPS for the first quarter 2011 is expected to be in the range of $1.31 ? $1.38. This is significantly above the current Zacks Consensus Estimate of $1.22 per share. RIMM also expects to add between 4.9 million – 5.2 million net new BlackBerry subscribers in the same quarter.

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