September 27, 2012 11:57 pm

Research In Motion – keep breathing

When you put aside working capital reductions, the BlackBerry maker is burning cash

This is the scene in the movie where the hero, having administered frenzied CPR – while shouting “Breathe, damn you, breathe!” – rejoices tearfully as the patient sputters and gasps back to life.

Research In Motion’s newish CEO, Thorsten Heins, plays the hero. Here are the vital signs from his company’s latest earnings report, released late on Thursday. Both subscribers (80m) and revenue ($2.9bn) grew slightly from the quarter before. Expectations had been for revenue to fall by $400m. Crucially, high-margin services revenue, where most of the company’s value now resides, held steady. The worry had been that with RIM adding users in emerging countries and losing them in the developed world, service revenue per subscriber would crash. That didn’t happen. The company’s net loss was also much lower than expected, but for a company in RIM’s position, cash is more important than earnings. And cash actually increased a bit, to $2.3bn.

This is all good news, and the shares rose 18 per cent in the after market. But there was one indication than RIM has a less than healthy long-term prognosis. The company generated $432m in operating cash flow in the quarter. That is why cash did not decline. But all of that cash and more – $550m – came from reductions in working capital, mostly falling receivables and inventory. Working capital reductions cannot be sustained for ever, and once these are put aside, RIM is burning cash.

So RIM’s fate hangs, as it did before, on its ability to revive its fortunes with it next generation of phones, which will not make it out until after Christmas. So the company must keep breathing for at least two more quarters, and then fight (among others) Apple and Samsung for its life. This movie is still likely to end badly.

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