On Thursday, RIM will be reporting results for the first quarter of fiscal 2010 after the close of the market. We’re expecting some good news from RIM in light of the current competitive smartphone pricing environment.
With the $99 iPhone and the Palm Pre launch, the smartphone wars have become much more intense. This is forcing RIM and other smartphone manufacturers, who wish to capture more of the consumer market, to lower their prices to increase sales. We have recently seen the Bold and the Curve 8900 drop around $50, and this, along with other carrier promotions, have helped sales tremendously.
Last quarter, RIM managed to beat expectations with sales increasing 84 percent to $3.46 billion compared to the same period a year ago. But gross margin was down to 40 percent from 51.4 percent a year ago, and 45.6 percent sequentially.
The issue therefore, is margins. By reducing device prices, you can increase sales, but profit margins are becoming increasingly slim in this environment.
The BlackBerry Bold costs around $169.41 to manufacture but this price does not include IP and a variety of other costs the carrier needs to pay. This means margins must be tight if AT&T sells the Bold for $199.99. By comparison, the BlackBerry Storm 9530 which carries a combined materials and manufacturing cost of $202.89, sells for $49.99 on Amazon.
RIM has a brilliant team of economists on board so while I’m sure they have assured the profitability of these devices, one can only hope that price wars don’t drive down profits enough to affect R&D and device improvements.