Research In Motion: HTC Is A Sign That The Knife Will Keep On Falling

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by: Investanomics

Investors In Research In Motion (RIMM) have gone through a lot of pain, the stock has lost over 80% since its 2009 high of $88. Research In Motion has been facing increased competition in the smartphone arena from the likes of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG). It almost appears that whenever investors feel it can't go any lower, the company would miss estimates and gap down.

Research In Motion has been late to respond to attacks by competitors in the smartphone market, and thereby given up large market share. Competitors are now starting to take aim at Research In Motion's most prized asset, corporate clients. Apple has now taken control of the business market with about 45% of the market share, Research In Motion has now fallen to 32% of the market. This puts the company in a very scary situation. With business customers making up a large part of its customer base, a few large customer losses could spell disaster for the company. Unfortunately I expect the trend of customer losses to continue, this will --of course-- further erode Research In Motion's market share.

I believe the recent report by HTC is a sign of what to expect from Research In Motion in the coming quarters. HTC is the fourth largest manufacturer of smartphones in the world, and it recently cut revenue forecasts for the fourth quarter by as much as 23 percent. HTC was a strong beneficiary of the Android operating system. This is the first time in two years that quarter-over-quarter sales growth has slowed. HTC cited intense competition from Apple and Samsung as the reason for the revenue cut.

Research In Motion has been relatively quiet lately, and I believe it's because sales may come in a lot less than expectations this holiday season. The company said the following in the last earnings report, "Blackberry smartphone shipments in Q3 are estimated to grow between 27-37% over Q2". The company may see a slight bump in sales due to the holiday season, but will still be below estimates. Research In Motion is still out of touch with reality and will continue to fall. Research In Motion should restate its projections instead of surprising investors next year.

Research In Motion may ultimately engineer a turnaround, but not until its line of QNX devices are released next year. I expect Research In Motion to be at a much lower price when the turnaround happens. I remain bearish on Research In Motion, and view rallies as opportunities to add to a short position. Research In Motion is losing sales to competitors and will end up a big loser at the end of this holiday season.

Disclosure: I am short RIMM.

Additional disclosure: I may open a Long position in AAPL or GOOG within the next 72 hours.

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