RIM: How BlackBerry Prices Could Affect the Company's Stock

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Includes: AAPL, BBRY, GOOG, NOK, PALM
by: Trefis

Research in Motion’s (RIMM) BlackBerry competes with smartphones from Apple (NASDAQ:AAPL), Nokia (NYSE:NOK), Motorola (MOT) and Palm (PALM). The company has been able to sustain the average amount it earns for each BlackBerry sold (about $340) during the last three years. Its average pricing declined only slightly from $344 in 2007 to $341 in 2009.

We believe that BlackBerry prices will decline to around $223 by the end of Trefis forecast period as a result of price reductions prompted by telcos and lower priced BlackBerries sold in emerging markets. However, there could be a 15% upside to our $77 price estimate for RIM’s stock if BlackBerry pricing continues to remain stable.

Below we highlight two reasons why BlackBerry prices could decline in the future:

1. Price cuts from telecom operators will trickle down to RIM

US telecom operators (Verizon (NYSE:VZ), Sprint (NYSE:S) and AT&T (NYSE:T)) subsidize the purchase of mobile phones like the BlackBerry for their customers. Subsidies help to make the BlackBerry more affordable for many customers and help RIM to keep prices high.

However, telcos are increasingly reducing prices on phones like the BlackBerry to retain existing subscribers and to win new subscribers from competitors. We believe that pricing cuts by telcos will eventually impact the amount RIM can earn from each BlackBerry.

A few examples of recent price cuts by telcos:

  1. Verizon launched the BlackBerry buy-one, get-one promotion offer to lure customers in Q3 2009
  2. Sprint cut prices of BlackBerry Tour to $149 and Curve 8330 to $49
  3. AT&T promoted BlackBerry Bold 9700 and Curve 8520 for the holiday season of 2009 with a special 50% off

2. Emerging markets are more price sensitive markets

RIM still derives the majority of its revenues from North America. Only about 37% of the company’s revenues come from international markets. However, RIM plans to aggressively tap into international markets going forward to benefit from growth potential of these markets.

RIM launched attractive models like the BlackBerry Curve 8520 and the BlackBerry Bold 9700 last year to cater to these markets. Emerging markets like India, China and Brazil provide attractive expansion opportunities to mobile phone companies but these markets are often more price sensitive markets compared to developed markets (US, Canada, UK, Germany).

15% upside to Trefis estimate if BlackBerry pricing remains stable

Although we forecast a decline in pricing for the reasons mentioned above, there could be a $12 upside to the $77 Trefis price estimate for RIM’s stock if BlackBerry pricing can continue to remain stable. If RIM can continue to introduce new features that make its phones more capable than the rapidly increasing selection of competing smartphones, then BlackBerry prices may decline less than we forecast.

You can modify our forecast for BlackBerry Phone Pricing above to see how RIM’s stock is impacted by BlackBerry pricing.

For additional analysis and forecasts, here is our complete model for RIM’s stock.

Disclosure: No positions