It's Too Early To Dump Research in Motion: Apple's iPhone Is Not Yet a Winner

Research in Motion (RIMM) stock fell $11.16 to $131 (7.9%) yesterday as investors concluded Apple (AAPL) iPhone will negatively impact RIMM’s business prospects going forward.

AAPL will, undoubtedly, be a formidable competitor in the consumer smart phone space, however, in my view, it is too early for investors to declare victory for AAPL and defeat for RIMM.

Before hitting the panic button on RIMM shares, investors should stop to consider some key shortcomings of the iPhone offering:

1. iPhone Price Misses The Sweet Spot For Mainstream Consumers: Price is the key to unlocking consumer demand. At an entry-level price of $499 for the 4Gig unit, AAPL limits its appeal to high-end, high income users.

2. Touch Interface May Have Disadvantages: Speed typers accustomed to a traditional keypad experience are likely to be frustrated. Touch screens do not offer the same “tactile feedback” that keypads provide. Not to mention the oily residue left behind from fingers on the screen.

3. June Release a Risk For AAPL and Allows More Time For Competitors: Consumers may delay purchases of iPods and/or smart phones as they await the release of iPhone. However, Pearl is available today with an attractive feature set and a price ($199) that appeals to a much larger segment of consumers. Moreover, further innovations from RIMM are likely to come before June. For example, 3GSM (Feb 12-15th) could help increase visibility on RIMM future product plans.

Bottom Line: My outlook for RIMM remains optimistic as success for iPhone is not a “slam dunk”. Upcoming triggers for RIMM include major share gains for Pearl (domestic and international) and details regarding new devices could become visible soon.

Disclosure: Author holds a small long position in RIMM and no position in AAPL.