Research in Motion's Miss Should Not Surprise

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:

1. 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.
2. 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.
3. 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.

Comments

[Hayweed:]

Right on Rimm wrong on Apple. Apple has a niche with high end consumers which buufers it more than Rimm. Rimm also has problems with the storm and the bold while Apple has worked out any kinks with their phone. The app store is the big differentiator which RImm and Nokia have no answer for

2008 Dec 03 02:27 PM

[Buffeted:]

1.) Lumping the iphone into your Monday morning quarterback update on RIM without specifics to back up your conclusions is fehlerhaft:
www.appleinsider.com/a...
2.) Your bold statements are based on an obvious logic without source, reference or evidence.

2008 Dec 03 02:39 PM

[Buffeted:]

appleinsider.com/artic...

2008 Dec 03 02:40 PM

[dandyapple:]

Apple IPhone sales will continue to increase since it does so much more at a very reasonable (subsidized) price. It is basically recession proof since people buying IPhones and Macs are consumers, small business, students, education, or professionals in Graphics, Media, Medicine, Photography, Advertising, Web and Software Development, etc. The Enterprise market is cutting back far more than these buyers. Nokia and RIMM will decline, but Apple will surge after this quarters results are in. Also IPod sales will surprise to the upside. Cute Colors sell to Kids!

2008 Dec 03 03:09 PM

[Tom B:]

If it were about "cute colors", MSFT's pink Zunes might have sold a few units outside the Redmond campus! It's all about functionality; without functionality, colors don't matter.


On Dec 03 03:09 PM dandyapple wrote:

> Apple IPhone sales will continue to increase since it does so much
> more
at
> a very reasonable (subsidized) price. It is basically recession
proof
> since people buying IPhones and Macs are consumers, small
business,
> students, education, or professionals in Graphics, Media,
Medicine,
> Photography, Advertising, Web and Software Development, etc.
The
> Enterprise market is cutting back far more than these buyers. Nokia
and
> RIMM will decline, but Apple will surge after this quarters results
are
> in. Also IPod sales will surprise to the upside. Cute Colors sell
to
> Kids!

2008 Dec 03 03:26 PM

[kris23:]

1-3 are spot on. "Until US consumers feel confident enough to buy bling again, sales of the latest smartphones are likely to disappoint." And there not feeling confident. Sentiment became extremely bullish for RIMM (Until US consumers feel confident enough to buy bling again, sales of the latest smartphones are likely to disappoint.) showing how pessimistic consumers really are. This sort of sentiment is bound to bring them down. RIMM sorta failed to deliver with the Storm which I know upset a lot of customers, including myself. While upgrading is a good focus, its kinda of hard to accomplish in our current macroenviorment.

2008 Dec 04 01:42 PM

[brewer:]

>"I expect to see disappointing unit sale results from RIMM along with >Apple and Nokia for the next couple of quarters. "

I expect you are wrong about Apple, and unlike RIM, you have no information, so don't blindly speculate.

While it's true that RIM is failing badly, Apple is not.

iPhone and iPod are selling VERY WELL... iPod Touch is SOLD OUT on AMAZON, etc... Number one on 'black friday' etc... It is because of the synergy with iPhone. There are more applications for iPhone than all other so-called 'smart' phones combined. (And more games than for PSP and Nintendo DS, products which were THOUGHT to be mature products have been displaced by Apple's iPhone+iPod Touch is only about 5 MONTHS.

Literally anyone can see the iPhone is a far better device and ANY blackberry, especially the Storm which looks and sounds like a toy compared to an iPhone or an iPod touch (which people are now CALLING (free with Skype) with them over WIFI, something no BB can do.

Also, the Blackberrys don't have an operating system. The iPhones/iPods do, but it's not the kind where you have to RTFM all the time--It's brilliant.

2008 Dec 04 02:55 PM

[Ron Shuttle...:]

Check today's link from Morgan Stanley regarding AAPL. It doesn't matter how good the device is...it's about how confident people are upgrading. Many will, but certainly not enough to meet expectations. Read my post again. I didn't say people would run away screaming with their hair on fire. I have never commented on the quality of the devices. My point is that the world economy would cause people to delay upgrade decisions, resulting in disappointing results for all of the smartphone vendors.

AAPL):+Morgan+Stanley+negative+on+the+stock/4228218.html'>www.streetinsider.com/...



On Dec 03 02:27 PM Hayweed wrote:

> Right on Rimm wrong on Apple. Apple has a niche with high end consumers
> which buufers it more than Rimm. Rimm also has problems with the
> storm and the bold while Apple has worked out any kinks with their
> phone. The app store is the big differentiator which RImm and Nokia
> have no answer for

2008 Dec 10 12:33 PM