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Hold On To RIMM

Posted on Thursday, Apr 3rd 2008

Yesterday, RIM (NASDAQ: RIMM) reported its Q4 and fiscal year 2008 financial results. Q4 revenue was $1.88 billion, up 104% y-o-y and 13% sequentially. Net income was $412.5 million, or 72 cents a share, up 118% y-o-y. It added 2.18 million Blackberry subscribers in the quarter bringing the total to over 14 million Blackberry subscribers. For the full year 2008, revenue was $6.01 billion, up 98%. Net income was $1.29 billion, or $2.26 per share diluted, up 105%.

Earlier coverage is available here and here, where I have discussed RIM’s iPhone threat, and its growing stature as a laptop replacement device.

RIM continued its stupendous growth ballooned by the iPhone launch last year. It was the third consecutive quarter with revenue growth of more than 100%. But will the equation change with Apple eying the enterprise market? In my post last year following the iPhone launch, I had said that RIM and Apple are not direct competitors because Apple’s focus has been consumer, while RIM’s is prosumer.

Just within a year, iPhone has announced the iPhone Enterprise Beta Program for companies to test the iPhone 2.0 software before its release. The new iPhone will have ActiveSync support for Microsoft Exchange Server 2003 or 2007 and push email. It also supports Cisco IPSec VPN for security. It remains to be seen how Apple’s enterprise penetration attempts pay off. Traditionally, enterprise has been Steve Jobs’ weak area. He doesn’t have the same level of instinct for the enterprise as he does for the pureplay consumer markets. There is also news of a new 3G version of the iPhone around the summer, but it is not clear if it will have enterprise features.

According to research firm Canalysis, Apple already has 28% of the U.S. smart phone market, having overtaken PALM with 9% but behind RIM with 41%.

RIM on its part is eying the consumer market with attractive models like the Pearl and Curve. About 38% of its BlackBerry subscriber base was non-enterprise at the end of the year 2007. And in Q4, more than 50% of its new subscriber account additions were from non-enterprise customers.

As for its outlook, RIM expects Q1 2009 sales between $2.2 and $2.3 billion and diluted EPS between $0.82 and $0.86. It is targeting net new adds of 2.2 million, which it believes would be driven by the launch of CDMA Curve with Verizon and Sprint. The stock is currently trading around $116 with a market cap of around $65 billion. Apple is trading around $147 with a market cap of around $129 billion.

In my opinion, both RIM and Apple will be going gangbusters in the smartphone market for a while yet. And that while is a real w-h-i-l-e. We are in the era of the convergence device, and for the next decade, worldwide, the movement will continue with great momentum. RIM will continue to be one of the top beneficiaries of his trend, and hence, it is a stock that I plan to hold onto for a w-h-i-l-e.

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