Research In Motion Ltd. (RIMM) exceeded the Zacks Consensus Estimates in its third quarter of fiscal 2011. The company performed very well with respect to several operating metrics like (1) revenue (2) EPS (3) margins (4) total number of BlackBerry phones shipment. According to our view, the global smartphone market is largely untapped providing a huge opportunity to Research In Motion to sustain its near-term growth. The strong brand value of BlackBerry is expected to keep the earnings momentum going for the company.
Despite these positive factors, we remain concerned regarding the company’s net subscriber addition which is directly related to its Service segment revenue and precipitous decline in ASP which indicates a product-mix in favor of low-end BlackBerry. We thus maintain our Neutral recommendation for Research In Motion, which means the stock will perform mostly in line with the broader market.
In spite of the global economic slowdown, smartphones are expected to become the next-generation choice, taking over market share from basic mobile handsets. Various industry sources predicted that smartphone shipment will nearly triple by 2014 making a much larger share of total mobile handset shipment. This grand opportunity provides a massive scope for Research In Motion to retain new users and grow revenues moving forward. The company has established effective sales distribution networks with 565 wireless carriers in over 175 countries.
By offering a convenient, reliable and secure way of accessing e-mail in real time, Research In Motion has been able to successfully differentiate its BlackBerry products from other offerings in the communications market. The company commands a dominant position in the wireless PDA market leveraging the popularity of push email system.
The BlackBerry brand is well established and devices are easy to use, facilitating upgrades to newer Blackberry handsets. The company significantly expended its geographical reach. In the third quarter of fiscal 2011, around 56% of total revenue was generated outside North America.
Nevertheless, Research In Motion is gradually losing market leadership as the sole provider of a user-friendly, integrated, and reliable email solution as competitive pressure is intensifying from iPhone of Apple Inc. (AAPL) and smart phones running on Android platform developed by Google Inc. (GOOG).
In the near-term, the company may continue to grow because of ever increasing demand for smartphones throughout the world. However, in the long-run, Research In Motion must develop a handset which can outperform the market. Failing which the company will face serious problems about remaining competitive in a market which is very rapidly changing in terms of technology, price and data plan provided by the carrier.