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Apr.03

1:03 PM ET

Friday, 3 Apr 2009

Are RIM's Numbers Really That Good? Yes.

Posted By:Jim Goldman

Topics:Wireless Communications | Information Technology | Internet | Technology

Sectors:Telecommunications | Internet | Technology

Companies:Verizon Communications | Research in Motion Limited | Apple Inc

Now that we've had a little time to digest the Research in Motion earnings, the question has come up: Are these numbers really as good as they appear?

The questions arise from RIM partner Verizon Wireless' promotion during the quarter to offer a buy-one-get-one free deal to customers. Even RIM co-CEO Jim Balsillie attributed a big chunk of the quarterly momentum to the deal.

Without that promotion, some RIM detractors complain, there's no way RIM would've put up the earnings it did, and therefore we should asterisk them the way Major League Baseball ought to asterisk Barry Bonds and his home run mark.

Not to give RIM its due, however, is a big mistake. Whether the free phones were subsidized by Verizon makes no difference. Had RIM only enjoyed big growth in unit shipments and subscribers, but not sales and earnings, I could see the argument. Had RIM sales soared but earnings remained flat, I could see the argument.

But none of that was the case: RIM sales, profits, units shipped and subscribers ALL soared. And the company was able to staunch the declines in gross margins, and is even looking for measurable margin expansion in the current quarter. That speaks volumes to RIM's momentum, Verizon deal or not. Fact is, money is money, profits are profits and RIM's bottom line is, well, the bottom line. Paid by customers, paid by partners; it doesn't make a difference. Earnings are what matters, and RIM's got 'em, especially in this ends-justifies-the-means climate on Wall Street.

Now, if RIM earnings implode during the current quarter because the giveaways end, then we'll know it was a one-time pop. And RIM shares will likely get torpedoed because of it. But with guidance like RIM's offering, there's simply no indication that's the case.

Someone wrote me this morning and said if a similar circumstance arose with iPhone and AT&T, the media would seize on the "one-time" nature of subsidized giveaways as the real reason for an Apple beat. I simply couldn't disagree more. This is about fundamentals, and profits. If AT&T wants to do a similar deal with iPhone, and it juices Apple's profits, then so be it and job well done.

Verizon and RIM came up with a winning idea, and the proof is in RIM's earnings. GC Research took its target from $59 to $95 this morning. RBC went from $75 to $80. Shares are soaring. Not because of the short-term nature of a one-time giveaway, but because the world is going smart phone, and RIM's got the goods. Missing that risks missing a big opportunity.

In The World Of Wireless