Research In Motion Prospects Remain Bright

Sep.24.08 | About: BlackBerry Ltd. (BBRY)

Canadian tech giant Research In Motion Ltd. (RIMM) will report its second-quarter results Thursday afternoon, and event investors will be watching closely, especially with market watchers raising red flags that RIM may face exposure to the wreckage in the financial sector.
Although the company's prospects are riding high with the release of its 3G BlackBerry Bold device and the recent announcement of the consumer-friendly BlackBerry Pearl Flip, RIM shares are trading about 50% below the 52-week high it reached back on June 19. The stock was changing hands at just above the C$101.50 mark at 11:30 am E.T. 

Furthermore, analysts are expressing concern about how much impact the current financial crisis will have on RIM. They're also worried about the delay in launching the BlackBerry Bold in the U.S., the company's largest market. Reports have suggested that 3G network congestion brought on by Apple Inc.'s (NASDAQ:AAPL) iPhone, BlackBerry's main rival in the smartphone market, is chiefly to blame for the Bold's delayed launch.

However, this period could prove pivotal in the company's history. RIM is expected to reveal details of its touchscreen BlackBerry device nicknamed "Storm" as well as a next-generation Curve device, "Javelin" as well as several other designs which company watchers speculate would be launched in early 2009.

Analyst consensus for RIM's second quarter is $2.59-billion in revenue, $0.87 in earnings per share, C$6.17 million in handset sales and C$2.62 million new subscribers. RIM has provided guidance of C$2.55-billion to C$2.65-billion in revenue, between $0.84 to $0.89 in earnings per share, with more than C$6 million in handset sales and C$2.6 million new subscribers.

Raymond James analyst Steven Li is looking for $2.64-billion in sales and $0.88 in earnings per share while maintaining a "market perform" rating on a $140 target price.

Mr. Li said in a note to clients:

We expect a solid quarter and despite concerns about product delays, we still expect solid guidance for the next quarter.

JP Morgan analyst Paul Coster expects RIM's results to meet or beat expectations based on the strength of BlackBerry Curve and Pearl sales and strong early adoption of the Bold in international markets. Mr. Coster sees RIM reporting $0.85 in earnings per share on sales of $2.95 billion.

Mr. Coster said in a research note:

At the threshold of a new product cycle, we would remain buyers of RIM but the possibility of a conservative third quarter guidance (associated with uncertain product timing) could present investors with a more attractive entry point.

Mr. Coster maintains an "overweight" rating on the company's shares.

Meanwhile, Research Capital's Nick Agostino is expecting RIM's results to fall at the mid-point of guidance but mainly in line with consensus, with $2.6 billion in sales, $0.88 in earnings per share, 6.14 million device shipments and 2.61 million subscriber additions.

Mr. Agostino, who maintains a "buy" rating with a $175 target, said:

Our channel checks show continued solid demand for BlackBerries, despite economic concerns. With the Bold device almost in full release - AT&T (NYSE:T) upcoming - the Flip Pearl set to ship in the third quarter, and more devices expected by the end of FQ3, we believe upcoming guidance has the potential to exceed expectations much like when the first consumer device (Pearl) was launched exactly two years ago.

RIM's smartphone market share gains should bode well for the company's second-quarter results, writes Scotia Capital analyst Gus Papageorgiou in a note. Mr. Papageorgiou expects RIM to report $2.572 billion in revenue, $0.85 in earnings per share, C$6.1 million in handset sales and C$2.7 million new subscribers.  

Mr. Papageorgiou said:

New devices combined with major carrier sponsored campaigns in Europe and North America should set the pace for further market share gains through to 2009. Recognizing the heightened risk involved with equity markets in the current environment our bias is to be long going into the quarter.

Mr. Papageorgiou maintains a "sector outperform" rating with a C$214 price target.