What's RIMM's Problem?

In less than six months, Research In Motion Ltd. (RIMM) has fallen from more than $145 per share to roughly $45. This is despite long-term fundamentals that position the BlackBerry maker as a leader in the smartphone market. The company is innovative, boasts competitive advantages and brings products to the market quickly. So what’s the problem?

Despite the boost RIM is expected to get from strong initial demand for the BlackBerry Bold and Storm launches, a deteriorating macro environment and intensifying competition poses near-term risks to the company’s growth and margins, according to RBC Capital Markets analyst Mike Abramsky. He pointed out that recent survey data demonstrates the weakest outlook ever for consumer electronics spending.

As a result, RBC expects global smartphone shipments will slow to 21% year-over-year in calendar 2009 from 52% a year earlier. Mr. Abramsky also slashed his price target for RIM shares from $90 to $65. The stock closed at $45.89 on Tuesday.

Nonetheless, the long-term outlook for data-centric smartphones such as Apple Inc.’s (AAPL) iPhone, BlackBerrys and those powered by Google Inc.’s (GOOG) Android platform is bright. RBC expects their portion of the total addressable market will grow from 7% (80 million units) in 2007 to 20% (294 million) by 2011. This equates to a compound annual growth rate of 37%, compared to just 7% for the mobile phone market.

RBC’s revenue amd earnings per share forecasts for RIM were also reduced to $11.1-billion and $3.58 on shipments of 26.9 million and 11 million subscriber additions for 2009. For 2010, those numbers fall to $15.4-billion, $4.41, 38.5 million and 15.7 million, respectively.

Comments

[thedozer:]

answer... discretionary income


call me when it's over

2008 Nov 12 02:52 PM

[well:]

it's definately not rimm, rimm, appl and so forth are all good companies, alot of good companies are getting battered, it's simply a harsh environment the economy is going down the crapper and it wont look pretty for a long time

2008 Nov 12 03:50 PM

[thedozer:]

good news is I'm in my early 30's so I can still go long... but these companies may be solid, but do they have the cash to keep swimming through deep waters

2008 Nov 12 04:52 PM

[Timeline St...:]

@lcpcp - I think that you're leaving too much at the foot of the market and not identifying that RIMM is not managed as well or as robust as AAPL.

To begin, the difference between AAPL and RIMM is that AAPL has lost about 50% of its value since August, while RIMM has lost closer to 70%. That premium (if you will) is the market's way of saying that RIMM is riskier. Look at the past two quarters....(1) RIMM MISSED earnings, admittedly by a tiny margin, in both; (2) true to its conservative guidance nature, AAPL CRUSHED earnings as it has every quarter for years. RIMM is hit or miss with earnings. Even a slowdown will affect AAPL less because the iPhone GAAP accounting insulates them from slowdowns, somewhat.

I do believe that the market is pricing into RIMM the possibility that one of these RIMM earnings announcements will be a real clinker. Like, there will be an earnings call when they will finally need to admit that their market share has dropped and once that news comes out, it's a rush for the exits. I've said it before, think Palm for what will happen to RIMM. Their next earnings call is Dec. 21. They can't seem to get that Storm out, so that will have little if any effect on this quarter.

As a Canadian company, won't RIMM also suffer if the U.S. dollar gains strength against the Canadian Dollar?

Look here for earnings history:
data.cnbc.com/quotes/R...
data.cnbc.com/quotes/A...

2008 Nov 12 05:04 PM

[Timeline St...:]

@thedozer - look at the balance sheets for your answer. The good news for both is that neither has long-term debt. The cash situation is a different story.

AAPL has $24.5 billion in cash and equivalents and could survive for years of down markets. Plus, it recognizes at least $2.0 billion of cash EVERY QUARTER just from iPhone, even assuming low sales.

RIMM? $1.6 billion in cash and equivalents. A truly deep recession and you can figure it out.

2008 Nov 12 05:10 PM

[well:]

timboM - its clear u love appl..like i said it's not rimm. it's ignorant to compare rimm to palm. rim has a foothold in the business world it generates revenues in all sorts of ways while iphone i still a toy. if u compare the two, their down about the same, appl was 200 before the baloon burst and hot air came out. with the storm that's ahead everyone is adjusting the targets including appl because everyone knows that things will cool down and targets wont be met. so alot of good solid companies will be effected

2008 Nov 12 06:03 PM

[provengers666:]

I don't think that smarphones fall into the catagory of your typical consumer electronics. Buying a flat panel TV is much more discretionary than a phone that allows one to perform multiple taks. In fact, I would go so far as to say that a consumer would be more likely to cancel their home phone or internet than cancel their data plan. And keep in mind that the cost of buying a smart phone these days is extremely cheap. Example #1 The STORM is FREE in EUROPE with a minimum 18month contract. #2 The Javeline is FREE in Germany with a minimum $5.00 plan, #3 The STORM is $199 for consumers and likely $99 for business clients in the US. If you still think that 199 is expensive for a phone that is comparable--if not better--than the iPhone, I suggest you visit your local Verizon Wireless store on November 24th and see how many people disagree with you.

2008 Nov 12 08:43 PM

[well:]

annon i actually agree with you, not to mention their global tapping other markets, i think the storm has great potential and if it's priced right i would definately pick it over iphone, its just something about that annoying touch screens and battery u cant remove. things arent pretty but u just never know we'll just have to wait and see

2008 Nov 13 12:04 AM

[mark hayek:]

RIMM is a big mover too, when ther index is down, RIMM is a leader in the industry and goes down, when the index is UP, RIMM rides up, so watch the macroeconomics for signs of a trend reversal.

2008 Nov 13 08:56 AM

[Hayweed:]

UBS cut their price target to $50.00. Bold and Storm released late in the quarter. Will rimm miss for the 3rd quarter in a row. Questions as to whether Rimm's new products are that great. The bold was reviewed as the best blackberry ever but not revolutionary. WSJ noted it was big (as in size). The storm is being released at the same price as the iphone which means it has to be really good or people may pass on it. Way too much risk with this one trick pony.

2008 Nov 13 10:41 AM

[Hayweed:]

Someone throw a flag for piling on

Research In Motion Tgt Cut To $60 From $72.75 By Canaccord >RIMM
Last update: 11/13/2008 11:11:22 AM
(MORE TO FOLLOW) Dow Jones Newswires (201-938-5400)

2008 Nov 13 12:09 PM

[kris23:]

I agree, I think RIMM is just getting battered like a lot of other companies due to the harsh economic environment. They need to release the Storm already and create some buzz for the company and with the holidays coming up, it could be a good few months for them. Sentiment has begun to get more bullish (www.predictwallstreet....) and I hope this sustains because they're down almost 7.5% today.

2008 Nov 13 12:41 PM

[well:]

another day full of carnage, appl down to 87, rim hitting 38, these companies arent going out of business. we're looking at two solid companies in a harsh environment and it's just a lousy week with nothing but sell offs.

2008 Nov 13 01:27 PM