Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) reported disappointing first quarter results last week. The company posted a loss of 13 cents a share on revenues of $3.1 billion. Analysts were expecting 7 cents in losses and $3.38 billion in sales. The BlackBerry maker reported sales of only 6.8 million smartphone units, of which only 2.7 million units were new BB10 devices. That surprised everybody as Wall Street was expecting an improvement after the launch of Q10 and Z10. But CLSA analyst Avi Silver wasn’t surprised at all because the results came exactly as he had expected.

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Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) Operating Losses To Deepen Further

Silver says Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) will continue to deteriorate over the coming quarters. Operating losses will grow steeper. The Canadian company is facing declining hardware margins, high channel inventory, significant subscriber losses and pressure on services revenues. CLSA has lowered its FY14 EPS estimate from -$0.19 to -$1.19. For 2015, it now expects an EPS of -$2.05 compared to the previous estimate of -$1.32. CLSA has a Sell rating on the stock with $8 price target.

The smartphone unit sales were in line with CLSA estimates, though they missed Wall Street consensus. Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB)’s gross margins on BB10 devices came at 33.9%, lower than CLSA estimate of 39.9%. Avi Silver believes that BB10 sell-in has been much greater than sell-through, resulting into an inventory of 1.5 million to 2 million units in the channel. CLSA believes an additional inventory might be piling up at the company’s manufacturing partners.

CLSA says BB7 gross margins are also expected to deteriorate sharply from 3.5% in the first quarter to -5.7% in the current quarter. The research firm also expects BB10 gross margins to decline further from 33.9% to 26.5% this quarter.

Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) Services Business Under Pressure

Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB)’s services revenues stood at $794 million, lower than the CLSA estimate of $896 million. That’s mostly due to Venezuela currency issues that ate away $72 million in revenues and 2% in gross margins. Service revenues were down 14% QoQ and 20.4% YoY.

Its subscriber base shrank from 76 million to 72 million. And the situation is expected to worsen as Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) management has decided not to disclose subscriber metrics in the future. Latin America, Europe Middle East & Africa, and North America, everywhere the company lost subscribers except in Asia.

The company’s market share in emerging Asian markets is also under threat as low cost Android smartphones have started offering messaging experience with WhatsApp, that’s on par with BBM. CLSA expects service revenues to decline at least 31% to $2.7 billion.

Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) What’s Next?

CLSA believes that Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) will try to lift the sales volume with Q5. The device is expected to hit the market in mid-July at around $300 price. For Z10 and Q10 devices, Avi Silver says the company will have to offer price concession to move inventory before launching Q5. That would result into increased pressure on BB10 margins and ASP.

Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) shares were down 3.15% to $10.13 at 12:57 PM EDT.