* Subscriber numbers fall for the first time
* RIM to change service pricing model, worrying analysts
* Stock drops 10 pct, reversing 7 pct gain after the bell
* Company reports net profit on tax gain
By Euan Rocha
Dec 20 Research In Motion
shares tumbled more than 10 percent on Thursday after the
company reported the first ever decline in its subscriber
numbers and outlined plans to transform the way it charges for
its BlackBerry services.
RIM, which hopes to revive its fortunes and reinvent itself
via the launch of a brand new line of BlackBerry 10 devices next
month, caught investors off-guard on its quarterly conference
call, when it said it plans to alter its service revenue model -
a move that will pressure the high-margin business that accounts
for about a third of RIM's sales.
"RIM provided few details regarding the economics of these
changes, thus adding a large cloud of uncertainty to the primary
driver of its profitability, which we view as especially
worrisome given risks already surrounding the firm's massive
BlackBerry 10 transition," said Morningstar analyst Brian
Those subscribers who need enhanced services like advanced
security will pay for these services, while those who do not use
such services will generate much lower to no service revenue,
RIM Chief Executive Thorsten Heins told analysts and investors
on a conference call on Thursday.
"I want to be very clear on this. Service revenues are not
going away, but our business model and service offerings are
going to evolve ... The mix in level of service fees revenue
will change going forward and will be under pressure over the
next year," cautioned Heins.
The news startled investors, who had earlier in the evening
pushed RIM's stock more than 7 percent higher in post-market
trading, after the company reported a narrower-than-expected
quarterly loss and said it boosted its cash cushion ahead of
next month's crucial launch of the BlackBerry 10 smartphone.
RIM's shares have for weeks been on a tear as optimism
around BB10 has grown. Following RIM's surprise announcement on
service revenues, however, the stock ended 9 percent lower at
$12.85 in trading after the closing bell.
Analysts also expressed concern about the decline in RIM's
"The early reaction was probably just 'Hey, numbers looked
OK, better loss, the cash flow was good' but if you know the
company, you're looking at the subscriber base falling off,"
said Mark McKechnie at Evercore Partners in San Francisco.
One reason the shares rose earlier was RIM managed to build
up its cash cushion to $2.9 billion from $2.3 billion in the
Analysts have been keeping a sharp eye on the size of RIM's
cash pile, as RIM will need the funds to manufacture and
effectively promote BlackBerry 10 in a crowded market.
RIM is counting on the new line to claw back market share
lost in recent years to the likes of Apple Inc's iPhone
and a slew of devices powered by Google Inc's Android
"They've done a great job at generating cash," said Raymond
James analyst Tavis McCourt in Nashville. "They're certainly in
a much better position than they were three or four quarters
The Waterloo, Ontario-based company said it is now testing
its BB10 devices with more than 150 carriers - up from about 50
carriers as of the end of October. RIM expects more carriers to
come on board ahead of the formal launch of BB10 on Jan. 30.
Positive feedback from developers and carriers around RIM's
new BlackBerry 10 devices has buoyed the stock in the last three
months. Despite the plunge in RIM's share price on Thursday, the
stock has more than doubled in value the last three months.
On an operating basis, RIM fared a little better than Wall
Street had expected. It reported a loss of $114 million or 22
cents a share, excluding one-time items. Analysts, on average,
had forecast a loss of 35 cents a share, according to Thomson
RIM also reported a surprise net profit of $9 million, or 2
cents a share, for its fiscal third quarter ended Dec. 1, on the
back of a one-time income tax related gain. That compared with a
year-ago profit of $265 million, or 51 cents.
RIM said it shipped 6.9 million smartphones in the quarter,
even as its subscriber base fell to about 79 million in the
quarter from about 80 million in the period ended Sept. 1.
In recent years, RIM's user base has grown, even as the
BlackBerry lost ground in North America and Europe, boosted by
gains in emerging markets. While eye opening, the shrinkage was
not as bad as some observers expected during the last quarter
before the BB10 launch.
"We're encouraged that the subscriber base only declined
slightly during a very public transition, and BlackBerry sales
were about what we expected," said Morningstar's Colello, who is
based in Chicago.