Earnings Preview: Research in Motion Has Its Work Cut Out

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Includes: AAPL, BBRY, DELL, ERIC, GOOG, HPQ, LGERF, NOK, SHCAY, SSNLF
by: Investment Underground

Known for the Blackberry, Research in Motion (RIMM) reports earnings on Thursday, March 24. For Q4 2011, the Street expects a proforma EPS between $1.62 and $1.81, and the company expects it to be between $1.74 and $1.80. In Q4 2010, the actual figure was $1.27. You do the math, this would mean solid growth.

For the entire year, analysts expect proforma EPS between $6.10 and $7.03. In FY 2010 through February, the company posted a proforma EPS of $4.37. The company has already turned out $4.56 in proforma EPS in the first 9 months of its 2011 fiscal year. In comparison, it was $3.05 for the same period in FY 2010.

In Q3 2011, the company made a record 14.2 million shipments of Blackberrys, which was an increase of 40% over Q3 2010. Revenue also was $5.49 billion, up 19% from $4.62 billion in the previous quarter and up 40% from $3.92 billion in the same quarter of last year. The revenue breakdown for the quarter was 82% for devices, 15% for service, and 3% for software and other revenue. Approximately 5.1 million net new BlackBerry subscriber accounts were added in the quarter. At the end of the quarter, the total BlackBerry subscriber account base was over 55 million.

Device revenue increased by $2.61 billion, or 29.5%, to $11.47 billion, or 80.0% of consolidated revenue in the first 9 months of FY 2011 compared to $8.86 billion, or 81.5% of consolidated revenue in the first 9 months of FY 2010. This increase in device revenue over the prior year was primarily attributable to a volume increase of ~11.3 million units, or 43%, to approximately 37.5 million devices in the first 9 months of FY 2011 compared to ~26.2 million devices in the first 9 months of FY 2010, offset by a decrease of $32, or 9%, in average selling price to $307 in the first 9 months of the current fiscal period from $339 in the first 9 months of FY 2010.

So, you may ask, what about its competition?

Apple (NASDAQ:AAPL) sold 16.24 million iPhones in the quarter, representing 86% unit growth over the year-ago quarter, and also sold 7.33 million iPads during the quarter.

Net sales of iPhone and related products and services were $25.2 billion in 2010 representing an increase of $12.1 billion or 93% compared to 2009. Net sales of iPhone and related products and services accounted for 39% of the Company’s total net sales for the year. iPhone unit sales totaled 40 million in 2010, which represents an increase of 19.3 million or 93% compared to 2009. Net sales of iPad and related products and services were $5.0 billion and unit sales of iPad were 7.5 million during 2010. iPad was released in the US in April 2010 and in various other countries over the remainder of 2010.

Dell (NASDAQ:DELL) recently introduced its Venue and Venue Pro smartphones, and said that later this year it will also start selling the “Honeycomb,” a 10-inch tablet that runs Google (NASDAQ:GOOG) Android 3.0. However, this makes up an insignificant part of the company’s Mobility segment, as notebooks and mobile workstations have the wolf’s share of revenues. The company grew EPS by 84.93% in FY 2011 through January.

Sony Ericsson (NASDAQ:ERIC) sold over 9 million Android-based Xperia phones since its launch. This phone is the first-ever mobile phone to integrate Playstation games and controls into an Android device. The company claims that its market share in the total global handset market 2010 was ~4% in units and ~6% in value. Units shipped declined by 25% to 43.1 million, while the average selling price increased by 23% to 146 euros ($205).

Nokia (NYSE:NOK) is serious about competing in the smartphones arena. In fact, from April 1, 2011, the company will have a new operational structure, which features two distinct business units in Devices & Services business: Smart Devices and Mobile Phones. They will focus on its key business areas: smartphones and mass-market mobile phones.

In 2010, net sales in smartphones and mobile computers grew by 17% to 14.78 billion euros ($20.85 billion), and the number of units sold shot up by 48% to 100.3 million. However, the average selling price dropped by 21%.

The key element of Nokia’s smartphone strategy is the planned strategic partnership with Microsoft (NASDAQ:MSFT) announced on February 11, 2011, to build a new global mobile ecosystem. The Windows Phone ecosystem targets to deliver more competitive, differentiated and innovative mobile products with an unrivaled scale, product breadth, geographical reach and brand identity. Under the proposed partnership, Nokia would adopt and license Windows Phone from Microsoft, as its primary smartphone platform.

During 2010, Nokia also introduced a number of more affordable models based on the Symbian operating system, including the Nokia C600, a messaging optimized smartphone with a 3.2 inch HD touchscreen display, a slide out four row QWERTY keyboard and a 5 megapixel camera; and the Nokia E5, a messaging optimized QWERTY smartphone that builds on the success of the Nokia E71 and Nokia E72.

During 2011, Nokia plans to complement its offering of mobile phones and smartphones with its first mobile device based on the MeeGo operating system. MeeGo is an open source, mobile operating system project and our own development around MeeGo will place increased emphasis on longer term market exploration of next generation devices. MeeGo was formed from the merger by Nokia and Intel (NASDAQ:INTC) of their respective Maemo and Moblin Linux-based computer operating systems during 2010. Nokia has previously deployed Maemo on Internet tablets and, most recently, the Nokia N900, which was the first Maemo-based device offering cellular functionality.

LG Electronics (LGERF.PK) dropped 24.9% in 2010 in its sales of handsets to 12.8 trillion KRW ($11.4 billion). In 2011, the company aims to focus on profitability by launching premium smartphones and differentiated tablet PC products along with recovering cost competitiveness for feature phones. Its new products will include the Optimus2X / OptimusBlack, Revolution, and tablet PC.

HTC (2498.TW) grew sales volumes from 11.7 million to 24.6 million (+111%) in 2010. Revenues also grew by 93% to 278.8 billion TWD ($9.4 billion). For Q1 2011, the company expects shipments to be around 8.5 million, which would be an increase of 157% from Q1 2010.

In mobile devices segment of Motorola Mobility (NYSE:MMI), revenues grew year-over-year driven by smartphone unit shipments that increased to 13.7 million from 2.0 million in 2009. The smartphone segment grew on a unit basis more than 60% from 2009 to 2010. The company expects the smartphone segment unit growth to be between 40% to 50% for the full year 2011.

Samsung (OTC:SSNLF) grew smartphone shipments to ~25 million in 2010 from ~6.8 million in 2009. The company expects continuous growth of the smartphone market, mainly founded upon replacement demand. Samsung shares also trade on the Korean Stock Exchange (005930.KS).

In July 2010, Hewlett Packard (NYSE:HPQ) completed the acquisition of Palm, Inc., which enhances the company’s ability to participate more aggressively in the growing smartphone and connected mobile device markets. The aggregate purchase price was $1.8 billion.

The company plans to launch the Veer later this spring, and the HP Pre3 in the summer.

Sharp (OTCPK:SHCAY) aims to introduce more smartphones in Japan to cater to demand for high end products. The company also aims to venture into the US and Europe to appeal to the smartphone demand.

Research in Motion has its work cut out.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.