Last week investors were treated to good news on several fronts. US macroeconomic data published on Friday showed that consumers spent more than expected in November, with personal spending up 1.1% (a threefold increase over October) against the projected 0.7%. The November increase is a high second only to the 1.2% increase for May 2004, and there are those who now believe we will see a significant slowdown in December, as consumers realize their homes will not continue be a money machine as they have been in recent years.
On the microeconomic front, with Oracle Corp.'s (ORCL) surprise already history, last Thursday it was the blackberry handset company, Research In Motion Ltd. (RIMM)'s turn , which reported a doubling of its quarterly profit to $0.65 from $0.32 in the same period last year, with sales coming in at $1.67 billion. The company's guidance for the February quarter was only slightly higher than the analysts' consensus estimate, but against prevailing worries about an impending recession and ongoing banking crisis that was all it took to send its share soaring by 11%.
Research In Motion shipped 3.9 million new handsets worth an average of $342 each in November, an annualized increase of 116%, and added 1.65 million new subscribers in the quarter ending November. This, it will be recalled, was an exceptionally tough quarter for the financial sector, one of the largest of RIM's enterprise customers. The increase in subscribers reached an annualized 89%, and it turns out that half the new customers in the quarter were from the consumer sector, a figure which was quite a surprise, considering that the device's principal competitor is the Apple Inc. (AAPL) iPhone.
For Bear Stearns analyst Andrew Neff, there has been only one stock out of the ones in the electronic sector he rates "Buy" and which he described as "hyper-growth" and that was Apple. Following RIM's fantastic results, he has raised his rating for the company to "Outperform" from "Peer Perform" and set a target range for 2008 of $150-170. He now sees it as another "hyper-growth" stock for the long-term.
Neff is excited by the fact that RIM has managed to penetrate the consumer sector. "We think anxiety over economic concerns and potential slowdown in US enterprise spending is overstated in view of the secular phenomenon of smart phones," he writes. Neff notes that the company extended its penetration by cutting data supply prices, as well as improving the quality and design of its handsets. In addition to expanding its range of applications, including new launches likely in May 2008, Neff says RIM is now marketing its products in 130 countries, and has now added the mega markets in China and India to its global reach.
Neff stresses in his note to investors that the competition on the market is not between RIM and its Blackberry, and Apple and its iPhone but rather, one between smart handsets and ordinary ones, and believes the world is moving toward smart handsets.
I had occasion to discuss this over the phone with SanDisk Corporation (SNDK) CEO Dr. Eli Harari while he was in Israel two weeks ago to celebrate the first anniversary of the merger with M-Systems, whose team he never ceases to praise. In answer to my question about what was new on the market he said,"There is an earthquake taking place - that no one is aware of yet - because of the iPhone. Everybody wants to do the same thing, and with a good many flash chips in the process." We know more about this earthquake after RIM, and now all eyes are trained firmly on Apple, which will announce its own results in January.
Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.
