RIM is already replacing Laptops

Thursday, January 3, 2008 | 8 comments

Yet another smartphone company that I expect will continue to do well in 2008 is RIM (Nasdaq: RIMM). Most importantly, it is validating one of my hypothesis of the smartphone gradually becoming a laptop replacement device.

It had a fantastic year owing to the momentum in the smartphone market catalyzed by the iPhone launch. It recently shipped its 20 millionth Blackberry in Q2. For Q3 2008 that ended December 1, revenue was $1.67 billion, up 100% y-o-y and 22% sequentially. Net income was $370 million or $0.65 per diluted share. It added 1.65 million BlackBerry subscriber accounts in Q3 bringing the total to 12.15 million accounts.

100% y-o-y growth is not something we see often at these revenue ranges, unless the company has an absolute hot product line. RIM, clearly, does.

RIM, with its popular Blackberry line, is the king of the enterprise or the prosumer smartphone market. With the help of its Pearl and Curve products in which it has tried to improve user experience by adding media player and Wi-Fi functions, it has also increased its non-enterprise subscriber base to 34%. This is, however, a market in which it directly competes with the iPhone.

But its focus remains the enterprise business and therefore it does not directly compete with Apple in the near future. Eventually, it will find itself face to face with not just Apple but other laptop vendors, but that will not be for at least another year, may be more. [Read my detailed analysis on RIM vis a vis the iPhone, where I had suggested it could be an acquisition target for Dell, a PC company that still lacks a convergence device strategy. Since then, RIM’s market cap has overtaken Dell’s, so who acquires whom remains to be seen.]

For now, in some sections of the market like Wall Street, RIM has already successfully positioned itself as a laptop replacement device. It is also doing well in the government sector with a big order from FBI for its Blackberry devices.

It had a 3:1 Stock Split in August when its stock price was around $225. It is now trading around $113 with a market cap of around $64 billion. For now, I am holding on to my RIMM investment, with the assumption that (a) the market will continue to grow and (b) RIM will continue to execute.

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