Winners (and a Few Losers) from RIM's Recent Quarter

As has been widely covered, RIMM posted what was by all accounts a solid Q4 result, as well as optimistic guidance. This hasn’t gone unnoticed by the street, with shares up more than 20% as of mid-day Friday.

What hasn’t gotten as much attention, however, is the implication of RIMM’s quarter on their partners, suppliers, and competitors. The earnings call revealed a number of notable insights with implication beyond RIMM’s own results. I’ll highlight the top three and then hypothesize their impact on the broader ecosystem.

(1) Continued strong unit sales and activations.

• Unit shipments for the quarter reached 7.8 million units up from prior quarter of 6.7M (15% sequential growth).
• Net new accounts were 3.9M (>50% sequential growth).
• Strong carrier promotion, with the Verizon (VZ) buy-one-get-one-free campaign (including Storm).

(2) Shift of focus onto non-enterprise markets.

• Approximately 70% of the 3.9M net new subscribers were non-enterprise, bringing non-enterprise to over 50% of the user base.
• Announcement of the BlackBerry App World as an answer to iPhone AppStore, clearly not just aimed at non-enterprise, but probably weighted in that direction.

(3) Pipeline of new device launches forthcoming.

• RIMM execs were vague in details on their next device launches, but as CNBC reported, the buzz is about a touchscreen + QWERTY phone – an answer to the Palm Pre.
• Reference to new multimedia products. Ongoing but everything is sort of getting reloaded into the summertime. I just can’t get specific right now but lots of packaging, lots of multimedia, lots of new air link. Some surprising things for sure.

Now for the implications.

Possibly the most direct line can be drawn to suppliers. Marvell (MRVL) and Qualcomm (QCOM) are major suppliers to the BlackBerry line, and Synaptics (SYNA) produces the touch screen interface for the Storm, which appears to have had a solid launch and ramp, given the solid non-enterprise unit shipments. Synaptics and Cypress (CY) are both rumored (reported on CNBC 4/3) to be key suppliers for the touch/QUERTY product, which should give them an extra bounce. Another reason to like the suppliers is that margin, one of the major concerns of the analyst community given the land grab environment in smartphones, should have relatively lesser impact on the component suppliers than on RIMM or the carriers.

Next, implications for competitors: The aforementioned touch/QUERTY product appears to be aimed directly at Palm’s much hyped Pre. Similar form factor, similar expected launch timing, app store model and partnership with arguably a much stronger go-to-market partner (Verizon vs Sprint (S)). For PALM, who’s already on very thin ice, this could be a knockout punch.

Paradoxically, I’d argue that Apple (AAPL) could be a net winner of this attack on the Pre. As the category leader, iPhone could be strengthened by a field of entrants rather than just one head to head battle. The beauty of the app store model is the network effect – the larger the installed base, the more developers/companies want to have an app to access them, the more attractive the platform becomes. Multiple equally sized newcomers stunt the critical mass that can be achieved.

Finally, carrier partners. I’m not as well versed in the dynamics and profit models of this segment, so I’ll state the obvious. Verizon’s fortunes are tied to BlackBerry, AT&T’s (T) to iPhone and BlackBerry, and Sprint to Palm. Unclear what this means for ATT and VZ but Sprint doesn’t appear to be helped by this at all.

How to trade: my favorite out of the bunch is Synaptics (SYNA) for the RIMM relationship as well as a host of other reasons. As I first wrote back in October, Synaptics is well positioned for both the smartphone market and the netbook market. Their short interest is still an inexplicable 45% of shares outstanding, so if they beat/raise in their April 20 earnings call, we could be set up for a massive short squeeze. My second trade would be short PALM, which has a tremendous way to fall (zero?) if its Pre launch fails to meet the hype. While I’m not currently short PALM due to its current momentum, I’m planning to do so at the first whiff of reversal.

Disclosures: Long SYNA.

Comments

[JamesApple:]

1) It is time for Smartphone Wars. RIM is quickly becoming the Empire. It is appropriate for Apple to resume the proper role of the good side of the Force.
2) RIM has started the Buy 1 Get x Free price war. This could be the floodgate that the Korean and Taiwanese smartphone companies are looking for. The Korean and Taiwanese smartphones are traditionally much more consumer oriented and cost about 1/5 the price of most RIM phones with excellent Audio and Video hardware. Sharp has the best of all mobile screens. With eBay purchases of unlocked Korean and Taiwanese Samsung/LG/HTC/Sharp/.... smartphones it would be only a short time for $19.99 RIM BlackberryBold-like hardware to proliferate on eBay, Amazon, Baidu, etc. We consumers love love love the price wars. Does RIM?
3) Software like Skype shot up to the number 1 smartphone App Store spot in 1 day with over a million downloads, and it runs on Apple iPod. And this is only the beginning. When Skype runs on every phone, does RIM have the kind of legendary customer loyalty of the Apple fans to hold the RIM customers from flocking over to the much more economical, sleek, sexy and open Korean, Japanese, Finnish, Taiwanese smartphones that are so much friendlier to the customers' pocket books, and yes......these phones are unlocked. Running Skype on Apple and the non-RIM phones is going to take a lot of expected ARPU direly needed for Verizon to recover Verizon's heavy subsidy for RIM's Buy 1 Get 1 free campaign. Verizon is screwed, RIM is got Verizon's money so that RIM can continue to pop RIM phone advertisements on North American prime time TV at 5 minute intervals selling junk.
4) RIM can only push back their financial expenses so far because they have to be posted in their books. With the way RIM is throwing all their reserves, pulling out all the stops, RIM looks like it is on the last Blitzerich in 1944 prior to the Allies crushing Berlin.

Apr 05 12:49 PM

[Frank Castle:]

Funny I guess you missed Blackberry will have Skype in May and even better it WILL run in the background (no need to wait for push notifications)

I would say RIM does have loyal customers and even better they have agreements with EVERY carrier on the planet. Apple is practically begging carriers (China/India) and are quickly finding out users care about coverage / call quality then apps they use once and delete.

And you have it backwards - Apple is the Empire and all media companies can't stand them. Carriers are quickly seeing this and regardless how popular iPhone is carriers can bide their time for other devices to bypass Apple and not have to give up control Apple dictates. It worked for MP3 players but carriers are not going to stand by and give up bandwidth and monthly fees for Apple market share. (which is static).

Apr 06 09:18 PM