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RIMM's Fraudulent Results- Not Sustainable

National Post: Trading Desk
RIM’s sales jump only temporary: U.S.report
Feb 10, 2004

RIDING WAVE OF UPGRADES

By: Scott Adams

An “investigative accounting” report on Research In Motion Ltd. is making the rounds on Bay Street. Gerald Oney of Texas-based Austin Stock Research wrote a critical report on RIM more than three weeks ago. It was a followup to an original “short report” that raised competitive concerns facing RIM. In his latest report, Mr. Oney takes aim at the mix of RIM’s revenue in its latest quarter, a quarter in which RIM blew by expectations and saw its stock (RIM/TSX) rise 50% in one day. A stock offering worth about US$900-million soon followed. In its third quarter ended November, RIM reported handheld hardware revenue of US$86.6-million, services revenue of US$44.6-million, software revenue of US$14.1-million and other revenue of US$8.6-million.

Hardware revenue was not only the largest contributor to the quarter, but also contributed most of the growth. Total revenue increased US$28.2-million sequentially, with hardware contributing US$20.4-million of that increase. Mr. Oney then points out that RIM shipped 237,000 handheld units in the quarter, while it only added 154,000 net new subscribers (to bring it to a total of 865,000 subscribers).

RIM’s management says the difference between units shipped and net new subscribers can be explained by subscribers that upgrade their old devices for new ones, Mr. Oney said. Subscribers are often upgrading devices as they move from old wireless networks to new ones, called 2.5G networks.

In the last nine months, there have been about 210,000 upgrades, and since the end of February, 2002, Mr. Oney estimates that there have been about 250,000 upgrades.

With RIM's subscriber base at only 321,000 at the end of February, 2002, Mr. Oney believes the upgrade cycle is almost complete. “While we concede that some of the upgrades will be normal (devices lost, desire to change carriers, desire for more features etc.), we believe at least 200,000 represents upgrades to 2.5G networks,” Mr. Oney said. “If we are correct in our upgrade theory, then the transition to 2.5G has resulted in a temporary boost to recent sales... We believe the greater concern is the company’s ability to generate sales to fill the void once this wave of upgrades has completed.”

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