Research In Motion Ltd. (NASDAQ: RIMM) is set to report its earnings after the close on Thursday this week. We expect a strange earnings report. Investors saw a large upside surprise last quarter, but this was solely because the sentiment expectations had become so bad that analysts went above and beyond with the RIM-bashing.

The current expectation is for a wide loss for the last quarter. Analysts predict that RIM will post a loss of $0.35 per share on a whopping 49% sales decline to $2.65 billion. For the following quarter, the estimates are a loss at $0.26 per share and $a 31% drop in revenue to $2.87 billion. It is this current quarter, not yet ended, that holds the key to RIM’s future, because of the upcoming BlackBerry 10 operating systems release slated for the end of January.

A research note this morning from Shaw Wu of Sterne Agee maintained a Neutral rating ahead of the report. Wu said:

We anticipate the company to meet or beat consensus as expectations are very low, looking for a 50% Y/Y decline in revenue and an operating loss of $0.35 or nearly $300 million. However, we remain concerned with its declining business and sustainability of its cash balance. Moreover, it remains to be seen if BB10 will be embraced by consumers and developers beyond early carrier excitement.

Our own take is a bit different. To us, the entire story here is the launch of BlackBerry 10, while still focusing on international market growth for its traditional business. Our biggest caution is that, even if RIM became ridiculously oversold, its shares have more than doubled off the 52-week low. After closing at $13.93 Monday, the 52-week range is $6.22 to $17.96. At this point we do not care that this stock used to be multiple times higher than this. That was before Apple Inc. (NASDAQ: AAPL) changed the smartphone landscape with the iPhone and before the spread of the Google Inc. (NASDAQ: GOOG) Android operating system.

RIM obviously will be careful in its outlook for BlackBerry 10 in this conference call. It has to play up the launch and the enthusiasm from carriers. Still, it cannot be too aggressive or Wall St. will accuse it of having a myopic view with a further loss of credibility. RIM also has to be careful to not call the iPhone 5 and the wave of Android phones too dominant as well.

One serious consideration here is the short interest. Nasdaq recently showed that the end of November short interest was back up to a whopping 113.7 million shares. That short interest is the highest it has been for all of 2012, and that can create a short-covering rally even if the news does not look that good on the surface.

JON C. OGG

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