Seeking Alpha torn over RIM

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It might just be a sign of where the economy is, but financial website SeekingAlpha has published two thoughtful, well written articles saying two completely different things about RIM’s future. First up is SA analyst Bapcha, who says that RIM is currently the cheapest growth stock:

Research In Motion (RIMM), the manufacturer of the (Bl/Cr)ackBerry, turned in some exemplary numbers. For the three months ended Aug 30, 2008 (RIM’s Q2, 2009), revenue was $2.58 billion, up 15% from $2.24 billion in the previous quarter and up 88% from $1.37 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 82% for devices, 13% for service, 3% for software and 2% for other revenue.

During the quarter, RIM shipped approximately 6.1 million devices, and grew their subscriber base by 2.6 Million. Awesome numbers. In fact, for fiscal 2009 [ending Feb 2009], top-line growth of 80% and a growth of 70% in EPS is at the low end of what the company thinks they can churn out [awesome]. For fiscal 2010 [March 2009 to Feb 2010], I think that a growth in revenues of 40% yoy and EPS of 35% yoy [assuming slightly lower gross margins moving forward] are for sure numbers that RIMM can deliver on.

However, fellow SA analyst Matt Stewart has prepared five reasons why RIM will continue to fall.

1) The average selling price will continue to fall for smartphones. Just like they have for cellphones, plasma TVs, Personal computers, digital cameras, and most other hardware devices that can be copied and mass produced for less and less money every year.

2) The average gross margin for these devices will also continue to collapse. How far will they fall? I took a look at Nokia’s (NOK) gross margins as a reasonable proxy for where RIMM’s margins are heading.Try 35% v. RIMM’s recently reported 50%.

3) At some point, these devices will “commoditize” in terms of features and innovations. It seems logical to me that consumers will ultimately be offered a cross-section of “me too” devices, trustworthy brand names, and compelling pricing. RIMM’s hardware and software will also get commoditized if not out-innovated in the future.

4) Enterprises will migrate to completely open e-mail architecture to allow their users to be “device agnostic”. Many enterprise accounts that only support RIMM for their users today will ultimately open up the range of hardware options for their users and put pressure on RIMM’s device share in this segment.

5) Carriers will increasingly apply pressure to handset vendors either by way of bargaining for better pricing or by continuing to produce their own private label handsets in order to capture more of the vertical value chain that exists in this space. As hardware continues to be innovated, carriers have been ceding bargaining power to hardware manufacturers. But as the innovation curve flattens, the bargaining power will tilt back towards the firm closest to the customer. eg. Verizon (VZ) v. Apple (AAPL).

So what do you think, folks? Two very well-reasoned arguments about RIM’s future… Only time will tell, I guess?

  • Mike

    From the viewpoint of an IT professional, this guy is missing the boat on point 4. It’s going to be a long time before organizations concerned about security, particularly e-mail security, will trust any other device above a BlackBerry device. RIM’s ability to synchronize the BlackBerry to a corporate e-mail system, securely end-to-end, will keep them going strong in the enterprise market.

  • Mike

    From the viewpoint of an IT professional, this guy is missing the boat on point 4. It’s going to be a long time before organizations concerned about security, particularly e-mail security, will trust any other device above a BlackBerry device. RIM’s ability to synchronize the BlackBerry to a corporate e-mail system, securely end-to-end, will keep them going strong in the enterprise market.

  • MobileAdmin

    All these analyst just don’t get that point .. and that RIM is a lower TCO then anyone else!! It drives me crazy .. we had a budding interest in iPhone for anyone who wanted one and recent security concerns as well lack of management killed that thought.

    Until anyone goes head to head with what BES can do I don’t see anyone that values BES strengths to move to something else. Good was close and motorola pretty much has done nothing with it. If Apple bought Good it would be real interesting!

  • MobileAdmin

    All these analyst just don’t get that point .. and that RIM is a lower TCO then anyone else!! It drives me crazy .. we had a budding interest in iPhone for anyone who wanted one and recent security concerns as well lack of management killed that thought.

    Until anyone goes head to head with what BES can do I don’t see anyone that values BES strengths to move to something else. Good was close and motorola pretty much has done nothing with it. If Apple bought Good it would be real interesting!

  • SingStar

    I agree with Mike. If this guy had any pulse on the enterprise market he would know that IT shops want to manage their deployments. These places are trying to reduce their overhead costs by streamlining what they support. Introducing an open environment totally counter-acts that.

    Also on the carrier point, the carriers are going to stick with manufactures who provide lower ROIs, don’t kill their networks AND reduce RMAs. It’s not JUST about the upfront cost of the device.

  • SingStar

    I agree with Mike. If this guy had any pulse on the enterprise market he would know that IT shops want to manage their deployments. These places are trying to reduce their overhead costs by streamlining what they support. Introducing an open environment totally counter-acts that.

    Also on the carrier point, the carriers are going to stick with manufactures who provide lower ROIs, don’t kill their networks AND reduce RMAs. It’s not JUST about the upfront cost of the device.