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RIM’s Uphill Battle

Posted on Tuesday, Mar 29th 2011

BlackBerry maker Research in Motion (RIM) (NASDAQ:RIMM) last week reported fourth-quarter results that beat estimates by a slight margin but gave a weak outlook that sent its shares down and led many analysts to downgrade it. RIM is launching its tablet, PlayBook, on April 19 and much depends on the device’s success. PlayBook will be based on RIM’s new QNX operating system and will support Android applications. Will this strategy work to revive RIM in the extremely competitive and crowded mobile device market?

RIM’s Financials
RIM reported fourth quarter revenue of $5.6 billion, up 36% y-o-y and 1% q-o-q. Net income was $934 million or $1.78 per share compared to net income of $710 million, or $1.27 per share last year. The company had forecast revenue of $5.5 billion to $5.7 billion and EPS of $1.74 to $1.80, while analysts expected revenue of $5.64 billion and EPS of $1.76.

For the full fiscal year 2011, RIM reported revenue of $19.9 billion, up 33% from $15 billion last year. Net income was $3.4 billion or $6.34 per share, up 47% over fiscal 2010. During the quarter, RIM shipped 14.9 million BlackBerry smartphones for a total of 52.3 million smartphones shipped over the year, up 43% over fiscal year 2010.

That seems to be a healthy growth rate, but its pales in comparison to that of other vendors. According to IDC, although RIM is No. 2 behind Nokia in the global smartphone market, Apple’s market share increased by close to 90% and Samsung grew more than 300% over last year. In the U.S. market, according to Nielsen, RIM and Apple are neck-in-neck with 27% market share each, while Android phones, including Samsung, Motorola, and HTC, held 29% of the U.S. market.

For the full year fiscal 2012, RIM expects EPS to be more than $7.50. Revenue for the first quarter of fiscal 2012 is expected to be in the range of $5.2 billion to $5.6 billion. Gross margin percentage for the first quarter is expected to be approximately 41.5%. EPS is expected to be in the range of $1.47  to $1.55 per share. Analysts expect first-quarter earnings of $1.65 billion on revenue of $5.64 billion.

RIM said the guidance range reflects a mix shift in handsets toward lower ASP products in the first quarter and increased investment related to its tablet and platform initiatives. The guidance range is slightly wider than normal to reflect the risk of potential disruption in RIM’s supply chain as a result of the recent earthquake in Japan. RIM is trading around $56 with market cap of about $29.3 billion. Its 52-week range is $42.53 to $76.78. The company ended the quarter with a cash balance of $2.7 billion.

Chart forResearch In Motion Limited (RIMM)

Recent Acquisitions
RIM continued to make small acquisitions, and the latest additions to its portfolio are social contacts service Gist and tinyHippos Inc, creator of Ripple, a cross-platform mobile application development and testing tool. Gist creates profiles of people in network by using publicly available information from sources, and a profile can be accessed when one person sends the user an email.

Om Malik on GigaOM says:

“For RIM, the idea behind acquiring Gist would be to possibly re-invent the phone address book and make it integral to its core offering. It would actually make a lot of sense for RIM to do this, as it plays to its core strength – namely, messaging. By making the address book more networked and more social, RIM can build a social inbox, much like the one being championed by Facebook.”

This is an exciting acquisition by RIM that could be used to cash in on the social networking trend and help the company to gain an edge over competitors.

PlayBook: A Ray of Hope?
Another exciting acquisition by RIM was that of QNX last year. RIM’s new tablet, PlayBook, will be based on the QNX OS, and during the earnings call, management confirmed that QNX-based handsets will be available in 2012. RIM also announced that PlayBook will be supporting applications built for Android.

Stuart Weinberg of the WSJ reports that

“The move will greatly expand the number of third-party applications accessible on the device, and could attract developers who had previously ignored RIM.”

Estimates for the PlayBook range from 150,000 to 4 million in fiscal 2012, while Street estimates are for 2.7 million PlayBooks.

Morgan Stanley analyst Ehud Gelblum says that RIM’s decision to support Android and the pending shift to QNX-based BlackBerries will put the company on a better competitive footing against Apple and Google.

RIM has tried it all. It has improved its BlackBerry OS, and it is now up to its acquisitions like QNX and Gist as well as Android applications to help it win the uphill battle against tough competition, especially in the U.S. The jury is still out.

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