Research In Motion's Dream Run Comes to an End 40 comments
Prashanth Cherukuri
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Research In Motion (RIMM), the maker of Blackberry devices, released its First quarter earnings Wednesday (June 25). The company reported revenues of $2.24 billion, up 107% from the year-earlier period. And it generated $483 million in net income, or 84¢ a share, compared with net income of $223 million in the same quarter last year, or 39¢ a share.
It also said that wireless operators added 2.3 million new BlackBerry subscribers in the quarter, bringing its industry-leading total in the smartphone market to more than 16 million subscribers. RIMM is ramping up its investments to capture more market share, with operating costs rising 22%, instead of the expected 17%. Also, analysts were expecting the company to report $2.27 billion in revenue, and 85¢ a share in net income, which the company missed.
However, what the street looks for is the future, and the guidance came in weaker than expected. Even here, RIMM had nothing to cheer investors. Even though RIMM raised its revenue guidance from $2.44 billion to a range of $2.55 billion to $2.65 billion, it lowered its profit forecast from 90¢, to between 84¢ and 89¢ per diluted share. It plans to ramp up its capital expenditures from the $190 million in the first quarter to an average of $250 million over the next two quarters.
RIMM's dream run is beginning to look like a thing of the past. Its shares are up a whopping 70% over the past 5 months, and 33% since its last quarterly report. In a choppy market, investors were paying too much premium for a company that depends on just one basic product, albeit in different versions. It also runs a risk of being banned in India due to regulatory issues. RIMM's position will be threatened significantly when Apple's (AAPL) 3G iPhone hits the market in less than 3 weeks. Many consumers have held off on buying any cellphones since June 9, when the iPhone 3G was announced.
The 3G iPhone will support corporate email, which has been the Blackberry's USP and the only major reason why executives and managers have been devoted to Blackberry. Also, the number of applications being developed for the iPhone will generate a huge interest among younger consumers to go for the "cool" factor which is missing in the Blackberry. And the iPhone sells at $199, which puts enormous pressure on RIMM to slash rates on the Blackberry Bold (its next model) to a competitive level. The news that Blackberry Bold will be delayed could be the kiss of death for RIMM, which will then miss the sales in back-to-school and the holiday season. A significant advantage RIMM had over the iPhone till now was that the iPhone's reach was very limited to 3 or 4 countries. The next iPhone will be launched in 22 countries and will take away market share from RIMM slowly.
The bottom line is that it's time to sell RIMM. The company has had its run, as long as it had no competition. With Apple entering the phone space, RIMM will suffer the most. I think a Forward P/E of 23 is too much for RIMM right now. I expect the market to punish this stock, and return it to the $100 levels within the next 4 weeks. That is when you should look at buying.
AAPL stands to gain a lot from RIMM's impending trouble, but I suggest buying AAPL only after the earnings report in July. The Q2 results will not be very impressive since the first version iPhones were almost sold out in May. Buying at $140 will insure you against any collapse due to market forces, so wait till then.
Good luck trading in this unpredictable market!
Disclosure: None
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This article has 40 comments:
I wouldn't be so sure as the way Apple accounts for iPhone sales is over time and so there is still quite a bit in the kitty to cover for the gap..
Should RIM goes down to 80 dollars before put the hand on it?
As for apple, i disagree.. you should buy apple BEFORE the earnings are released! you say that they have run out of iphones but remember, iphones ONLY account for maybe a few % points of apple's revenues! right now the driving force of revenue/profit growth for apple are the macs! and the macs are supposed to grow as much as 60% this quarter over 2nd Q last year! that is how apple has broken revenue/profit expectations quarter after quarter for the past (i think) 18 quarters and thats how they will do it again.
So you already know AAPL will hit 140. You know the future.
Anyone that would care to research AAPL stock prices would easily recognize the contrarian nature of this stock before and after earnings announcements. The stock will climb steadily up until a few days before, then plummet after a spectacular announcement that they beat the street.
I don't know why, but it always happens.
Also, the iPhone's position for corporate email is absolutely not proven yet, no one has used the serve and no one has made comparison to the features and ease of use compared to RIMM. The corporate email feature are certainly not the iPhone's streight, but rather a nice-to-have feature in its earliest version. It will be very similar to what all Windows Mobile phone already have, and therefore not a new threat.
The iPhone has no physical keyboard, this is a major deal-breaker. Corporate clients cannot have dogmatic or shallow consumer designs get in the way of their productivity. There is a lot of work that goes in a BlackBerry to make it a perfect email device.
My prediction: the iPhone will actually generate interest and more sales for RIMM's new blackberry bold, and its follow-up which hopefully will be touch screen. I believe the iPhone will take market from the weaker Windows Mobile phones rather than RIMM.
I believe the biggest risk comes from on the phone carrier. They can marginalize RIMM by making the Bold with the business plan too expensive for people not already addicted to these phones. AT&T will apparently have more expensive business plans for the iPhone in order to unlock the corporate email feature.
COST ME A LITTLE MORE ON THE IPHONE THEN THE BLACKBERRY. I WISH THEY WERE THE SAME.
You make a lot of assumptions about the 3G iPhone. Of course, the verdict is still out and only time will tell if you got it right. My guess is that Apple will make the corporate e-mail user experience work. This is not based on assumptions, but rather on past performance. Apple is the standout tech company because it has proven time and time again that it is responsive to the users wants and needs and can improve it's products to meet and exceed those standards. It is no wonder that Rimm has done well and I think that it will continue to do well, however, I see Rimm as serving a much narrower market. To you and other business types maybe a physical keyboard is important, but the overwhelming success of the iPhone so far proves that for most people it is not. Apple attracts anyone that uses a phone, media player, or PDA, and is effectively putting a mini mac in the palm (pun intended) of your hand.
You may want to hit that CAPS LOCK KEY one more time before typing on that blackberry so you are not SCREAMING at everyone. Chill, man.
My basis for buying Apple after earnings was exactly stated by longapple.
Look at January or the April earnings release - fantastic numbers but were totally ignored. Also, there is no reason why Apple should not fall to $140.
In December 2007, when Apple was close to 200, I thought I would never need a sell stop, and we saw what happened in February when it went to $125.
And though Apple distributes revenues for the iPhone, it doesnt change the fact that the iPhone was sold out and even on a cumulative basis, lesser iPhones were sold.
That was my basis, and I'm sure anyone would love to see Apple at $140. Its better than a thanksgiving sale.
cheers
Prashanth
RIMM is a one trick pony and is subject intense pressure, one miss step the stock will take a dive. I wouldn't want to be a RIMM investor.
Things which blackberry supporters are now harping on as Blackberry advantages are things like:
- server control for things like push applications in enterprises
- Greater encryption
- a Keyboard
All the above and other Blackberry advantages Apple can get and implement - IF they wanted to, it'll just take a bit of time like getting 3G and GPS.
BUT blackberry will never be able to get an OS like OsX (a modified version which runs the iPhone). It took Steve and Gang something like 20 years to create (starting from Next OS) which makes the iPhone a much more powerful computer than the other smart phones. Microsoft can't match OsX so PHONE makers don't have a chance and when developers jump on board with the iPhone SDK the Os will be unassailable like Windows had been for many years (even IBM couldn't do it with Os2 after spending billions).
Now, some of the comments in this article are pretty shortsighted. Namely this ridiculous statement:
"The news that Blackberry Bold will be delayed could be the kiss of death for RIMM, which will then miss the sales in back-to-school and the holiday season."
A delay from mid July to mid August will really kill holiday sales 3 months out? Besides, how does one delay a product with no firm launch date? RIM has stood by their July/Aug time frame which still seems plausible.
Also, is the Bold really a big back to school item? It's their new high end device, not the student's first choice. I would argue that iPhones and Pearls/Curves would probably be more popular for students (given the parents are making the buy decision), not this high end device.
Next up on the ridiculous statement train:
"A significant advantage RIMM had over the iPhone till now was that the iPhone's reach was very limited to 3 or 4 countries. The next iPhone will be launched in 22 countries and will take away market share from RIMM slowly."
Very soon iPhone will be in what, 70 countries? maybe 80 networks? How many networks does RIM sell into? Try 375. SO they still have a distribution advantage. And it's not like RIM isn't trying to sign up the other 375 carriers (roughly 750 carriers on earth).
I also find this nugget wonderfully shortsighted:
"Even though RIMM raised its revenue guidance from $2.44 billion to a range of $2.55 billion to $2.65 billion, it lowered its profit forecast from 90¢, to between 84¢ and 89¢ per diluted share. It plans to ramp up its capital expenditures from the $190 million in the first quarter to an average of $250 million over the next two quarters."
So, the top line was raised, but because the earnings are estimated to come up short of expectations (and only a penny at the top end of the range), you are giving RIMM the death call? Did you listen to the conf call? Did you hear that they spent $200 mln subsequent to quarter end on IP that the CEO called "extremely fortunate"? If only 10% of this amount is expensed (and I honestly don't know how handle capitalizing/expensing this amount) then that 20 mln would equal about 4 cents pretax, maybe 3 cents after tax earnings and voila, they are right on top of the earnings estimates. Is it no longer death for them on that basis?
Now was the patent portfolio acquisition a good business move? I don't know but the CEO sure was psyched about it. Is the increased spending on the platform (i.e. infrastructure, R&D, and not just marketing, as this guy would have you believe) a good idea? I don't know, but I have to say that these guys have been pretty darn good about managing this business. If they see the need to invest to get to the next level, I'm all for it. Ultimately, we won't know if these investments work out until later this year, but it's a little soon to bring out the casket!
Apple's track record in business is nil, and they have a poor track record in actually responding to user's need.
The proof? Apple iPhone 2.0 has still has no Copy/Paste.
Apple are very dogmatic and stick to one size fits all decisions for consumer.
The fact that RIMM targets a much narrower market is an advantage. Their goal is to fully please that audience, it is not merely an added bonus.
It odesn't matter if Apple sells a lot of iPhone to consumers, that doesn't affect RIMM much, it simply expands the market to people who would not have bought smartphones. Thats good for RIMM.
Apple is not better positionned than others for the corporate audience which they do not target, and they in fact do not have any track record to back that up.
No keyboard, no copy/paste. Why would one assume that the rest of the corporate experience is superior than Blackberry or even the current Windows Mobile market, just because Apple can make simple programs for consumers.
Looks like the wallstreet boys who are getting laid off and returning their blackberries to the office manager won't be around to inflate it anymore.
Can't say I'm sorry.
Apple's turn now, whether wallstreet 'gets it' or not.
This statement (or something similar) by Apple during the keynote only meant that at least one person at 75 of these fortune 500 companies have tried the phone. Could have been an I.T. person, could have been a casual user.
We do not know at this point how well the phone implements corporate features. We only know it has been "looked at", and obviously that is a minuscule number of users compared to the installed base of RIMM, and these test users have not made statement about how they felt about the product.
ullric, were you invited?
I'm gonna believe my lyin' eyes on that one.
I have to tell you that as a .Mac subscriber, I am amazed by how often I see there are disruptions with the service. Imagine if you can't instant message because their servers are having issues (realistically you wouldn't receive notifications of new messages when you close out of the IM program but this certainly would degrade usability). This requires real execution and a stable/resilient platform.
Doesn't anyone see the complexity of these services is noteworthy? Hence the reservation about anointing iPhone King and all others dead at this time.
iPhone 2.0 w/SDK 2008 = iPod 2001 x 10000+
Its like DejaVu. The MP3 player market happened well before the release of the iPod. There were many players available for purchase PRIOR to the iPod. ALL onlooker naysayers LAUGHED @ AAPL..... ITS TO EXPENSIVE! its this.... it its that... BLAH BLAH! and on and on. Well the rest is history.....
Now the SAME THING IS HAPPENING!!!! except this time the stakes are higher. How many analysts claim that AAPL doesn't under stand the telecoms or how they do not know enterprise? huh? Well keep doubting all you want, AAPL is poised for greatness and growth due to their superior innovation, hardware design and OS. Keep laughing people the yet has yet to come from AAPL.
iJah420 says...... China Mobile here come!
Countless many said AAPL would have little to NO effect and or impact on the telecoms & handset OEM. Well that NOT what i am reading lately....
food for thought
More Phone Trouble: Sony Ericsson Issues Q2 Warning
Posted by Eric Savitz
Trouble in the mobile phone business continue to mount.
Following up on disappointing results this week from both Research In Motion (RIMM) and Palm (PALM), Sony Ericsson (SNE, ERIC) this morning said that sales and pre-tax net income in the second quarter would “continue to be negatively affected by moderating demand of mid-to-high end mobile phone,” as well new product delays.
The company expects to ship 24 million phones in the second quarter, with an ASP of 115 Euros. Gross margin will be down both sequentially and year-over-year; the company expects to break even in the quarter before taxes. (The company notes that it sold over 100 million phones in 2007.)
This morning, Ericsson is off 74 cents, or 6.8%, to $10.12, while Sony is down $1.09, or 2.4%, to $44.46. Palm, which reported weak results after the close yesterday, is down 46 cents, or 7%, at $6.08. RIMM, which fell $18.88 yesterday, is down another $5.91, or 4.8%, to $117.55. Nokia (NOK) is down 82 cents, or 3.3% at $24.24; Apple (AAPL), which fell $9.13 yesterday, is down another $2.22, or 1.3%, to $166.04.
Little to no effect?
iJah420 say JAH RIGHT!
The truth will be in AAPL's Q2 #ers and July 11th.
iJah420 outahere
Let me just say, that it's possible, that a rising tide raises all boats. Blackberry has had a boost from an increasing consumer awareness of the smartphone niche.
As for Apple, I think the author is probably right, and that Apple will likely trade sideways or down at the next earnings call, as Apple has already stated that they will not take any income from iPhone sales from March until the SDK is released. Essentially, other than Deferred Revenues, there will be no new iPhone revs. That doesn't mean the iPhone revs won't be there, they just will be deferred into the next quarter. This should have a small but palpable effect on Revenues. Hopefully, the analysts who listened to the last conference call will adjust their expectations accordingly, but I don't think they will. I haven't seen any of them adjust their earnings since the last conference call, citing this downward accounting adjustment.
I don't trade short-term, but invest long-term, so I won't sell my shares and try to time when to get back in, to take advantage of the huge 3G iphone sales. It's up to individual investors, but timing the market is a tricky business.
Room for everyone!