Research In Motion Earnings Review

Right now the world is being increasingly split into two groups: Crackberry Users and iPhone Phanatics. These two companies are at the forefront of the wireless revolution and will maintain their positions for the foreseeable future due to innovation and consumer loyalty. Research in Motion (RIMM) and Apple (AAPL) are locked in a battle that both will win.

The key to this unfolding story is emerging markets. A global story told by rural communities around the world and increasing penetration in emerging national cities. RIMM has made the case that its appeal is moving beyond US borders and beyond its traditional e-mail applications. For example one farm collective in Latin america is using the Blackberry to help 30,000 farmers run their crops. According to Balsillie, “Applications are everything.”

Those who owned the Commodore 64 certainly think so! The Blackberry does it all for that rural farmer, what used to take an office and everything in it now can be held in one hand. There have been no better examples of emerging market growth than China and India, which have become the poster children for wireless growth.

These two countries are the largest and fastest growing cellular markets in the world. In 2006, they added 131 million net new subscribers. That number increased by 29 percent in 2007 with more than 170 million net new subscribers. Both countries are starting to see cellular penetration move from the city population centers and into rural areas as technology and the cost structures allow. This experience is not only occuring in Chindia but in Africa, Indonesia and Malaysia as well as many other emerging regions. The key question to ask right now especially during this “US led global slowdown” is, “Are we seeing a slowdown in demand from the emerging markets?” The answer is no.

There has been some anecdotal evidence that it has since December. Some concerns about overall demand were pointed out in Samsung and Sony Ericsson’s softer than expected unit sales recently. MOT’s recent weaker than expected sales and company strategic changes. Digital baseband supplier MediaTek Inc’s significant cut back in silicon orders for the first quarter of 2008 and RF component supplier RF Micro Devices Inc. pre-announcing negatively, citing, in part, demand in Asia. A recent build up of NAND inventory and falling prices didn’t help demand confidence. One has to wonder if these are company specific problems due to the intense competition. New evidence from the Telecom Regulatory Authority of India [TRAI] publishing its subscriber growth data for January and also new subscriber statistics from China Unicom and China Mobile Communications creates a great picture of accelerating Chindia demand. The graphs below show that demand is growing not stagnating.

Chindia combined for 17.2 million new subscribers in the month of January. India added 8.8 million (a record) and China added 8.5 million (also a record). What may be more important to the industry is the fact that the new subscriber growth rate at a combined level remains very strong at 32 percent year-to-year after a decline into the mid-high 20 percent range in the latter stages of 2007. China’s growth has moved back to the mid-30 percent range (+36 percent in January). India is back at +29 percent year-to-year after dipping to only 20 percent last October. This points to continuing secular growth.

RIMM is available in China and India while AAPL will be playing catch up in Chindia penetration. The future does look bright for RIMM and its future prospects, especially when it comes to their addictive products. According to the Boy Genius Report and analysts, the Blackberry 9000 is suppose to be launched in the near future between July and Fall. The new device is suppose to be more consumer targeted while the 8000 series owns the business segment. Everyone knows that the RIMM keyboard is much more business centric and email friendly so their targeted approach is admired. The new 9000 series coud be a full touchscreen model or a touchscreen with a slider like the recent RIMM patent below. The VP of RIMM has already mentioned that they are planning four or five new models in 2008, not one has been introduced yet. The 9000-series is described by Carmi Levy, an analyst at AR Communications Inc. , as “the future of the BlackBerry franchise,” a complete breakaway from the device’s business roots.

Now of course a new model series wouldn’t be complete without new software and the rumor is that the 9000 series could launch with OS 4.6.0 as well as possible 3.5G capabilities.

These products show the great leadership and innovation of RIMM and as we turn to RIMM earnings on Wednesday, you have a great sense that this is not a one trick pony and that they will not rest on their laurels as MOT had done with the RAZR.
Looking to RIMM earnings on Wednesday I aggregated the most recent analyst comments regarding this quarter. As most know RIMM came out early and announced higher guidance for the past quarter so all eyes will be not be on this quarter but on guidance for the year and the upcoming quarters as well as any news on product launches. In my opinion, RIMM has been known to play close to the vest so investors shouldn’t expect RIMM to announce any launch dates for new products. One thing I do like about the recent analyst comments have been about the positive channel checks all quarter long heading into earnings. Counting shopping carts is not an exact science but is a strong variable for consideration when gauging earnings performance.
One of the most accurate and influential analysts I listen to closely and who has been dead on with RIMM in previous earnings is AmTech Research.

On March 28th, RIMM: Checks indicate solid demand, estimates raised@LEHM
Lehman raised RIMM estimates citing strong prosumer expectations and steady enterprise demand. The firm’s checks indicate strong carrier net add momentum and they see a unit resurgence in Q1.
RIMM: Positive comments following channel checks@CRTC
CRT Capital thinks RIMM is well positioned to gain share in both the smart phone and the broader handset market and expects solid February quarter results. However, they think weak guidance could pressure shares and would use any sell-off as a buying opportunity.
RIMM: Raised estimates & target to $150 from $140@RBCM
RBC Capital expects RIMM to report an in line Q4 and guidance to be materially above consensus due to strong momentum. The firm’s checks indicate strong Q1 momentum and they believe the company will guide EPS to 81c-86c and revenues to $2.1B-$2.2B vs. Street estimates of 74c/$1.98B.
RIMM estimates raised after strong channel checks@PIPR
Piper raised their FY09 estimate to $3.59 from $3.40 after March channel checks showed continued strong sell-through trends for BlackBerry at the four largest U.S. carriers. Shares remain Neutral rated.

On March 27th, RIMM: 9000 series always scheduled for Fall release@AMTR
Earlier today, BoyGeniusReport.com said that the BlackBerry 9000 release may be pushed out to July/August. AmTech said that the 9000 has always been scheduled for a Fall and that there is no change in expectations for the new products. The analyst continues to recommend shares and reiterates their Buy rating.

On March 26th, RIMM: Are buyers ahead of results next Wednesday@AMTR
Am Tech expects the quarter will be in-line with the preannouncement and May guidance will be significantly ahead of consensus. They believe guidance will get the stock into the $120’s and reiterate a Buy rating.

Handsets: Remain comfortable with estimates following channel checks@BOFA
Banc of America believes stocks have misread what is a normal channel burn in Q1 and reiterates Buy ratings on NOK, RIMM and QCOM.
RIMM: Expect another solid quarter on April 2nd@SBSH
Citigroup is expecting modest upside to consensus and channel inventory drawdown. They maintain a Buy rating and $140 target.

On March 24th, RIMM receives positive mention by Jim Cramer-CNBC
Cramer expects a good quarter to be reported.

On March 23rd, Barron’s named the RIMM CEO and it’s executive team to the Thirty of the World’s Best Corporate Leaders List.
They are new to the list.

On March 19th, Wireless Equipment: Remain positive on NOK, RIMM and QCOM@BOFA
Banc of America believes that while the Smartphone market has gotten crowded, only a few vendors dominate industry profits. Nokia (NOK) remains the firm’s top pick, and they also remain positive on Research in Motion (RIMM) and Qualcomm (QCOM). Their checks on RIMM have been positive and they expect the company to post its best quarter yet.

On March 17th, RIMM: Recommend buying shares at current levels@PACS
Pacific Crest believes Blackberry sales are accelerating and sees potential upside to the quarter and guidance.

On March 7th, RIMM: Believe iPhone is unlikely to threaten Blackberry@RBCM
RBC believes RIMM is likely to remain a favorite of IT Departments even with iPhone’s new applications and they believe the iPhone lags Blackberry when it comes to typing messages, for message-centric business people. They reiterate an Outperform rating on RIMM shares.

On March 6th, in the WSJ, it was stated that “Multimedia phones are now the fastest-growing part of the $150B cellphone market. About 10% of the 1.1B cellphones sold in 2007 were 3G, the technology that runs multimedia or “smart phones.” The market may double to 240M units in 2008, according to Strategy Analytics, a research firm.” Very positive for RIMM looking forward.

On March 3rd, Piper reported that their recent channel checks on several RIMM devices were positive. Piper’s February checks indicated robust sales of the BlackBerry Curve at AT&T (T), Pearl and Curve at Deutsche Telekom’s (DT) T-Mobile, and BlackBerry Pearl and 8830 at Verizon (VZ) and Sprint (S).

Disclosure: None

Comments

[Jon T]

"..the great leadership and innovation of RIMM"

You have to be joking right?

After 14 months RIM have come up with the 9000 to compete with the iPhone? It is a terrible imitation of it with a terrible muddle of a UI...

Leadership and innovation it ain't.

[my cousinEarl]

RIM may have the jump over Apple in the emerging markets such as BRIC, but the growth story has already been priced into the stock as it's trading at a ridiculously high multiple. That being said, RIMM is one of my favorite stocks - TO POOP ON!!!

[Tom B]

I hear there are some penguins in Antarctica that favor physical keyboards because, you know, flippers are kind of awkward.....

[.crazylegs.]

Despite the fact that I agree with the overall tenor of this article, to quote Carmi Levy and put up that fake touchscreen picture that everyone knows isn't anything close to real discredits the author.

He is correct in saying that both platforms can grow massively in the coming years, whether that means selling BBs or iPhones to Penguins in antarctica or the middle class in India and China. One will not kill off the other no matter how emotional some of the above commenters get.

[snarfuffle]

This is by far the best research and detail I have ever seen for RIM with the inclusion of the iPhone markets. Excellent work and very well defined. Many of the iPhone phanatics have not been thinking globally as you have done here. Thank you.

[Ken Singh]

Reuters

April 15, 2008 at 10:27 AM EDT

NEW DELHI — The Indian government will hold its next meeting with BlackBerry-maker Research In Motion next week, a government official said on Tuesday, as the two sides look for a way to meet India's security concerns.

India's Ministry of Telecommunications has written to RIM asking for servers to be installed in India, which it says would help agencies monitor BlackBerry services.

“The next meeting is on April 21. BlackBerry experts are working to reach at a solution which is acceptable to the security agencies,” the telecoms ministry spokeswoman told Reuters. “The status quo continues.”

The government has held a series of meetings with RIM and mobile operators after it emerged security officials were worried that e-mails sent through BlackBerry devices could not be traced or intercepted.

Satchit Gayakwad, RIM's spokesman for India, restated the Canadian company's position that it would not comment on confidential regulatory matters.

BlackBerry services are offered in India by four providers, Vodafone, Bharti Airtel, Reliance Communications and BPL Mobile.

Gayakwad said BlackBerry's worldwide user base had reached 14 million at the end of March, from 12 million in December.

Research In Motion would not give India-specific subscriber figures, but an analyst has said there are more than half a million BlackBerry users in India.