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?
