Summary
RIM earned $796.7 million in net income during their second quarter ended August 28 in 2010. The previous year, they earned $475.6 million in profit. The company added 4.5 million new Blackberry smart phone users and shipped 12.1 million devices. The revenue earned amounted to $4.62 billion, slightly better than the analyst expectations of $4.5 billion. The company is pleased with the results and the momentum of this quarter is expected to carry over as new products such as the Blackberry Torch are introduced. The company is expecting revenue amounts ranging from $5.3 billion to $5.5 billion the following quarter.
Connections
RIM earned $796.7 million in net income which is reported as an increase in the operating section in the cash flow statement. The accounts following the net income are either deducted or added to the net income to give the total amount of cash earned or lost from operating activities. RIM’s inventory certainly decreased their cash flow because of the company’s rapid growth, adding 4.5 million new users of their devices and 5.4 million new subscribers as well. With an increased amount of customers, the company would have to compensate for this growth by purchasing even more inventory. The cash on hand would therefore be decreased. This would be recorded in the operating section as a decrease in cash flow.
Reflections
This article was written around 6 months earlier. Some information I compiled from the more recent articles I found gives a better representation of the company’s performance at this point in time. RIM’s most recent quarterly report states that the company earned $934.4 million in net income, a healthy increase from the $796.7 million reported in this article around six months earlier. The Blackberry Torch was a released as RIM’s response to Apple’s iPhone back in the summer of 2010. The device however, did not fare too well against its opponent. Despite the disappointing sales of the company’s newly anticipated Blackberry Torch, the company still managed to post an increase in its net income. With that being said, RIM will be having a hard time improving their sales in the next few fiscal periods. The company’s new and heavily anticipated Playbook tablet should see a similar result as the Blackberry Torch. The Playbook will be given the daunting task to compete against Apple’s iPad 2, which already has $2.5 million sales in the month of March. RIM’s new Playbook will have a hard time competing against Apple’s popularity. RIM should look to improve on marketing to increase their success against Apple.
http://www.cbc.ca/news/business/story/2010/09/16/rim-results-quarterly.html
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I agree that cash on hand would be decreased in the operating activities because more inventories would need to be purchased to satisfy the increase in customers. Since RIM is a strong and competitive company, therefore I believe they would earn back their cash from the sales of BlackBerry. Since Rim has added 4.5 million new BlackBerry smartphone users during the quarter, they must be aware of the amount of cash they have before and after the purchase of inventories because of the lead/lag relationship. Lead/lag relationship is the relationship between the cash going out to buy inventory and the cash coming in from collections of accounts receivable. Companies may go into bankruptcy because of low in cash in the company after the purchase of inventories, and the lead/lag relationship delaying the cash inflow, in the operating activities, after the sale of BlackBerry.
ReplyDeleteNot only does RIM have to increase their inventory to further satisfy their costumers’ demand, they also have to take in consideration of upgrading their gadgets to keep up with their rivals such as Apple, Sony Ericsson, and Google. In order to better their products, RIM must make additional investment into Research and Development which falls under investing activities in the cash flow statement. The investment into this account will result in an overall decrease in the company’s cash flow. However, if RIM were to invest into R&D, they must consider the risk involved in this investment as there are no guarantees that the investment will result in any improvements or satisfying results.
ReplyDeleteThe portable electronics industry has become a very competitive and serious market now for every company out there. I agree that RIM is standing up to Apple really well and they should furthermore improve in R&D, however I believe that they should specialize and pool their money in one field instead of competing against Apple with everything. Instead of spending more money on the playbook to rival the Ipad2, they should just spend more money on their smartphones to keep up with the Iphone4. Apple has obviously accumulated a large amount of cash due to their outstanding results in the past year and therefore has enough money to spread out and spend on other products. Rim on the other hand doesnt have the charity of spreading out its resource and still keep up with Apple.
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