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Research In Motion Ltd (BBRY) Bombs, and Shares Tank

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On Friday morning, struggling smartphone maker Research In Motion Ltd (NASDAQ:BBRY) released its much-anticipated results for the first quarter of FY14. The company reported revenue of $3.1 billion, up 15% sequentially, and a GAAP loss of $0.16 per share.

BlackBerry Ltd (NASDAQ:BBRY)

The company’s EPS result was hit by a $0.03 charge for restructuring costs and a $0.10 impact because of Venezuelan foreign currency restrictions, which have prevented carriers there from paying subscriber fees owed to Research In Motion Ltd (NASDAQ:BBRY). Even excluding these negative impacts, the company would have posted a small loss, whereas analysts (on average) expected a modest profit for the quarter. Moreover, the company doesn’t expect any immediate improvement, and therefore forecast an operating loss for the current quarter.

The weaker-than-expected results and the soft outlook caused Research In Motion Ltd (NASDAQ:BBRY) shares to drop as much as 29% on Friday morning. Management admitted that it’s difficult to predict future sales and profitability trends because of the tough competitive environment. Should BlackBerry investors throw in the towel?

BB10: Another problem child?
The main cause of Research In Motion Ltd (NASDAQ:BBRY)’s earnings miss was the relatively slow growth of BB10 phone shipments. The first smartphone running the new BB10 OS — the Z10 — was released in late January, and BlackBerry managed to ship roughly 1 million units in the first month. Last quarter, BlackBerry had a full quarter of Z10 shipments, and the company also launched Q10 in late April — the first BB10 device with BlackBerry’s traditional physical QWERTY keyboard.

The BlackBerry Q10 smartphone (courtesy of BlackBerry)

The Q10 launch seemed especially promising because most of the diehard BlackBerry fans who have stuck with the brand want a physical keyboard. However, despite having a full quarter of Z10 sales and more than a month of Q10 sales, Research In Motion Ltd (NASDAQ:BBRY) still shipped just 2.7 million BB10 phones during the quarter.

The monthly shipment rate was thus slightly lower in Q1 than in the previous quarter (when the company shipped 1 million Z10 phones in one month). The BB10 sales figure missed expectations: Most analysts were expecting 3 million to 4 million BB10 shipments in the quarter.

Unfortunately, the company refused to quantify the breakdown in shipments between Z10 and Q10. There are thus two plausible scenarios that investors have to consider. First, it’s possible that Z10 sales “fell off a cliff” after the initial 1 million units shipped in the prior quarter. If 50% or more of last quarter’s shipments were Q10 phones, that would suggest that while Z10 demand is fading, Q10 is seeing good upgrade demand from current Research In Motion Ltd (NASDAQ:BBRY) users.

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