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Research In Motion Ltd (BBRY) Has Challenges Despite Q4 Profits: JPM

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Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) surprised the Wall Street by announcing 22 cents a share profit whereas analysts were expecting a loss. However, JPMorgan said in its latest research report that the trends remain tough for the company. The introduction of Z10 has excited many investors, but the company’s non-BB10 sales and subscriber base continue to decline rapidly. JPMorgan Chase & Co. (NYSE:JPM) said Research In Motion will face a real challenge when the inventory stocking fanfare abates. Analysts anticipate a lukewarm sales of Z10 in the U.S. after similar response in the United Kingdom.

Research In Motion Ltd (BBRY) Has Challenges Despite Q4 Profits: JPM

Gross margins stood at 40 percent compared to JPMorgan Chase & Co. (NYSE:JPM)’s forecast of 28 percent. Analysts argue that gross margin volatility is usual when a high ASP product like Z10 hits the market. JPMorgan senior analyst Rod Hall said we will see a positive as well as negative volatility over the next 2-3 quarters. The Z10 sales were in line with JPMorgan’s expectations. The firm was expecting 900K Z10 shipments while the actual shipments were about 1 million units.

What disappointed analysts was a decline in revenues. Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) posted fourth quarter revenue of $2.68 billion, down 4.2 percent from JPMorgan’s estimate of $2.79 billion. Unit sales fell from 8.4 million in the third quarter to 7.9 million in the fourth quarter. The declined Q4 figure includes 1 million Z10 sales, which implies a greater drop in non-BB10 unit sales. That could partially be because people ware waiting for the new device.

To bolster the marketing campaign for BlackBerry 10 devices, the company has increased market expenditure by 50 percent. Despite increased spending Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) expects to breakeven with the help of improved margins, efficient supply chain and lower cost base. Additionally, PlayBook sales were better than estimates as the company shipped 370K tablets in the fourth quarter, compared to JPMorgan Chase & Co. (NYSE:JPM)’s target of 255K units.

The analysts lowered their BlackBerry shipment estimate for FY-2014 by 9.5 percent to 29.7 million units, while keeping BB10 shipment estimate unchanged at 14 million. Service revenues are expected to grow 23.8 percent or $606 million to $3.15 billion. JPMorgan Chase & Co. (NYSE:JPM) expects $12 billion in revenues, up from the previous estimate of $11.8 billion, because the increased service revenues will be offset by declining product revenues. The subscriber base is expected to decline further to 67.9 million by the end of the current fiscal year.

JPMorgan Chase & Co. (NYSE:JPM) is the financial adviser to Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB). So, it has suspended the rating and price target for BlackBerry maker. Shares of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) jumped 4.39 percent to $15.08 at 12:13 PM EDT.

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