RIM’s International Footprint Widening

Research in Motion (RIM) (NASDAQ:RIMM) last week reported strong third quarter results that beat all estimates. On the other hand, research firms and analysts have been reporting on dismal performance of its BlackBerry phones compared to that of Apple’s iPhone and Google’s Android phones. Let’s dig deeper.
RIM’s Financials
Third quarter revenue was $5.49 billion, up 40% y-o-y and 19% q-o-q. The company had forecast revenue of $5.3 billion to $5.55 billion, and analysts expected revenue of $5.4 billion and EPS of $1.64. Net income was $911.1 million or $1.74 per share compared to net income of $628.4 million, or $1.1 per share last year.

RIM shipped a record 14.2 million devices, up 40%. It added about 5.1 million net new BlackBerry subscriber accounts in the quarter, and the total customer base is over 55 million. Gross margin was 43.6% compared to 44.5% last quarter. RIM ended the quarter with a cash balance of $2.5 billion after spending $133 million on share repurchases.

For the fourth quarter of fiscal 2011, RIM expects revenue in the range of $5.5 billion to $5.7 billion, EPS of $1.74 to $1.80, and gross margin similar to third quarter levels. It expects to ship between 14.5 million and 15 million units. RIM also announced that its board of directors has appointed co-chief executive officers Jim Balsillie and Mike Lazaridis as co-chairmen of the board. Jim Estill, after 13 years as a director, resigned from the board because of a business conflict.

Recent Products and Acquisitions
RIM is working on a dual Persona Software for BlackBerry smartphones, which will segregate the personal side of the device from the secure corporate side within their existing and trusted BES infrastructure and management environment. This device software is currently in carrier testing and is expected to be available in the United States early in the New Year.

RIM launched the BlackBerry Torch in over 75 new markets during the third quarter. It also announced the BlackBerry Tablet OS and the BlackBerry PlayBook in late September. The PlayBook is expected to begin shipping in the United States in the first quarter of 2011. The BlackBerry PlayBook is powered by the BlackBerry Tablet OS, which is based on technology from the QNX acquisition early this year.

Over the past year, RIM acquired a number of companies, including Cellmania, Torch, QNX and most recently, The Astonishing Tribe, a Swedish company that designs snazzy user interfaces for smartphones and other mobile devices.

According to analyst firm Jefferies:

“We had already thought that the [BlackBerry-owned] QNX OS was excellent, but it could be even better after TAT incorporates some of its innovative 3D-like designs. TAT’s prior work on Android interfaces has been well received by reviewers and consumers.”

The stock is trading around $58.48 after hitting a 52-week low of $42.53 on August 31. Market cap is $30.67 billion.

Contrasting Picture
Quite a performance, but John Paczkowski on Digital Daily discusses a report from ITG Investment Research analyst Matthew Goodman that paints a contrasting picture of RIM. According to the report, RIM’s sales at Verizon have dropped from 93% last year to 39%, while Android sales have zoomed to 80% driven by 46% sales of Droids. The situation could worsen for RIM when Verizon gets the iPhone.

International Strategy Fueling Growth
So, how did RIM manage to report such a strong performance? RIM had strong sales in the international markets, and its revenue in the U.S. accounted for just 34% of the total revenue. RIM claims that BlackBerry is the number one smartphone in several markets in Western Europe, including the U.K., and it was the number one smartphone for the third consecutive quarter in Latin America.

Crayton Harrison and Hugo Miller on Bloomberg discuss RIM’s winning mantra in major emerging markets like Latin America and India:

“The messaging feature and lower-cost phones have boosted the popularity of Research In Motion Ltd.’s BlackBerry in the developing world, making it the top smartphone brand in Latin America this year, researcher IDC says. RIM is relying on emerging markets for revenue growth as competition from Apple and Google Inc.’s Android cut into its U.S. and European sales.

While the iPhone has won market share in the U.S., its price tag of about $700 puts it out of reach for people in Mexico, Brazil, India, and Indonesia, where most users prepay for mobile service because they lack the credit to qualify for contracts that offer subsidized phones.”

“RIM surpassed Nokia Oyj in Latin America in the first quarter to become the region’s top smartphone maker and had 39 percent of the market last quarter, according to research firm Canalys in Reading, England. Apple wasn’t among the top four.”

“In the Asia-Pacific region, excluding Japan and South Korea, RIM’s smartphone market share expanded in the third quarter to 6.2 percent from 3.8 percent a year earlier, while second-place Apple remained at 9.6 percent and leader Nokia fell to 64 percent from 73 percent, according to Canalys.”

RIM seems to be winning in the major emerging markets like Latin America, China, and India. Nokia, which earlier had a strong hold on these emerging markets, is now losing ground, while RIM is gaining at its expense. While Apple’s iPhone is hard to beat in the U.S. market, it loses out in these emerging markets where price is an issue.