RIM reported poor operating results on Thursday, Dec. 20, with revenue down 47% year over year, Blackberry shipments down 51% year over year to 6.9 million units and its subscriber base shrinking for the first time from 80 million to 79 million users.  RIM did generate $958 million in operating cash flow in the November quarter but a large amount was driven by lower inventories.Cash flows need to be viewed over a multi-quarter or multi-year timeframe.  For the past nine months or the first three quarters of fiscal 2013 RIM has lowered its accounts receivables by over $1 billion and its inventory by $570 million.  These are driven by lower sales, which is not a sustainable way of creating cash flows.


      9 month
Balance Sheet ($ mil) Feb. ’11 Feb. ’12 Nov. ’12 Delta
Account Receivables (AR) $4,279 $3,558 $2,540 $1,018
Inventories $618 $1,027 $457 $570
Total $4,897 $4,585 $2,997



Account receivables could still be a source of cash in the short-term but either sales will increase (which would increase AR and be a use of cash and a good situation for the company) or if sales don’t increase eventually AR will flatten out and not be a source of cash.  With inventories under $500 million and the upcoming launch of the BlackBerry 10 I would expect inventories to rise and be a use of cash vs. a source.The following table shows how AR and inventories have been a source
of cash in fiscal 2012 and the first nine months of fiscal 2013. 
Cash Flows ($ mil) Fiscal 2012 9 months
Account Receivables (AR) $730 $1,007
Inventories ($409) $572
Total $321



The last table takes the company’s operating cash flow and subtracts the positive impact from accounts receivables and inventories and incorporates capital expenditures and acquisition of intangible assets.  I believe this is a better indicator of the company’s cash generation.  For both time periods RIM has actually been using more cash (over $500 million) than it generates from operations.

Adjusted Free Cash Flow Fiscal 2012 9 months
Operating Cash Flow $2,912 $2,093
Account Receivables (AR) ($730) ($1,007)
Inventories $409 ($572)
Capital Expenditures ($902) ($325)
Acquisition of intangible assets ($2,217) ($770)
Adjusted Free Cash Flow


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December 24, 2012