This morning Research In Motion (RIMM) reported that it sold 300,000 units less than analyst expectations of 3 million. It's a pretty big miss, but it should not surprise investors for the following reasons:
- RIMM and Apple (AAPL) are relying on subscriber upgrades from regular cellphones to smartphones. In uncertain times, people are slower to make those decisions. The mobile subscription is essential; the latest and greatest handset is not.
- RIMM has lost a significant buying group. The financial services sector has been one of RIMM's major customer segments. With the loss of hundreds of thousands of jobs, mergers and consolidations, this previously lucrative market cannot be relied upon to drive device sales, or BES server sales.
- For similar economic reasons, RIMM's entry into Europe and Asia should not be as explosive as originally expected. Although everyone seems to have a mobile device, fewer businesses or consumers are likely willing to spend the money to switch from their cheap and cheerful (mostly Nokia (NOK)) devices to the more feature-laden RIMM smartphones.
I expect to see disappointing unit sale results from RIMM along with Apple and Nokia for the next couple of quarters. Until US consumers feel confident enough to buy bling again, sales of the latest smartphones are likely to disappoint.
For long-term investors, it should be noted that, despite reduced short-term performance, these three vendors are likely to consolidate their market dominance coming out of the recession. I suspect that the share price for RIMM could be at multi-year lows for the next few weeks, which would be a good entry point for those who like the story, but couldn't swallow an $85.00 shareprice earlier this year.
As per my last blog entry, look for carriers to:
1. Maintain subscriber bases with lower churn rates.
2. Disappoint on growth in data services (related to lower smartphone growth)
3. Disappoint on migration from 2G to 3G networks.
4. Slow down investment into FTTH and FTTC initiatives.
5. Begin consolidating wideband and broadband wireless infrastructure.
Bottom line, unlike device manufacturers, many consumers are tied to long-term subscriber contracts, and those that are not, are prepaid and, due to economic conditions, are not likely to switch. Downchurning is the biggest risk, where post-paid consumers are no longer able to manage subscriptions, and need to move to prepaid services. One can anticipate that this is the major churn risk for carriers.
Due to credit constraints, and balance sheet caution, we should see a decline in the big capital intensive upgrades to the carrier networks in the short-term. The future of network upgrades is likely linked to President-Elect Obama's stimulus packages. If Internet is included (as it should be) in infrastructure related stimulus packages, then carriers are likely to go forward with plans.
Disclosure: I do not own shares in any of the Companies that have been mentioned in this post, nor do I receive any compensation from these Companies.