Research In Motion Remains Neutral

We reaffirm our long-term Neutral recommendation on Research In Motion Ltd. (RIMM). The company declared mixed financial results for the fourth quarter of fiscal 2011. Although EPS beats the Zacks Consensus Estimate, revenue was below the estimate. Management provided a weak outlook for the ensuing first quarter of fiscal 2012. Ever since the legendary iPhone of Apple Inc. (AAPL) hits the market, Research In Motion started losing its leadership position.

For the last couple of years, the company failed to introduce any smartphone that can capture the market from iPhone. Meanwhile, the situation got aggravated once Google Inc. (GOOG) launched its Android software, which pushed BlackBerry further toward trough.

In the previous quarter, gross margin of Research In Motion was 44.2% compared with 45.7% in the prior-year quarter. We anticipate the gross margin to fall further in the neat term primarily due to two reasons: firstly, the launch of “PlayBook” will result in increased marketing expenditure and other selling expenses and secondly, growing share of sale in the emerging markets out of total sales, which may reduce ASP. Customers in the Asian markets are very much price sensitive and that may reduce the overall gross margin of the company.

Nevertheless, a silver lining for Research In Motion is the global smartphone market, which is largely untapped and is providing huge opportunity for the company. The strong brand value of BlackBerry is expected to keep the earnings momentum high. The company has established effective sales distribution networks with 565 wireless carriers in over 175 countries.

Although Research In Motion is on the verge of launching its first tablet, we are not sure whether the company will be able to snatch market share from Apple’s iPAD. While iPAD mainly targets the mass market, PlayBook is designed primarily for limited enterprise customers. Secondly, unlike iPAD, PlayBook cannot connect directly to wireless networks and needs Bluetooth connections of its users’ BlackBerry handset or Wi-Fi cloud for Internet access. Thirdly, PlayBook will run on QNX software instead of newly launched BlackBerry 6.0 operating system. This may create confusion among third party application developers to develop any software unique to all BlackBerry products.

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3 Comments on Research In Motion Remains Neutral

  1. Geez, another analyst with his head firmly up Steve Jobs’ ass. Is there any good, unbiased analysis out there? I would’ve thought Zacks was better than this. This is getting boring. I’m not an Apple or RIM fan (I’ve owned both) but US analysis is so skewed to Apple it’s getting to be a joke.

  2. I want to disclose that I used to have a Blackberry, and switched because of the ancient OS. RIM has completely rejuvinated their products with this new os which supports 32 core processors. The foundations of it are unbelievable. Let’s begin,

    1. “While iPAD mainly targets the mass market, PlayBook is designed primarily for limited enterprise customers.”

    I agree, to a degree. They are marketing it as the first “professional” grade tablet, however you are forgetting that they have all the hardware necessary for it to appeal to the mass market. They come preloaded with Need for speed, and Tetris. However their true lack in “mass” appeal at the moment is their app line up. However people seem to forget, that when the first iphone launched it had no app store. We know how that turned out. Short term will it hurt? Yes. Long term? No, because they have made the playbook accessible to developers of a variety of coded languages. From flash, to html5, CSS, you name it the playbook supports it. They are finally providing the developers an incentive to build on the playbook (a free playbook if their app is accepted into appworld)And let’s not forget their acquisitions of the astonishing tribe, and other developers over the past year.

    2 “Secondly, unlike iPAD, PlayBook cannot connect directly to wireless networks and needs Bluetooth connections of its users’ BlackBerry handset or Wi-Fi cloud for Internet access.”

    Why would you ignore that they are releasing the 4G, WifiMax versions in the summer? The ipad has both a wifi and 3g version, something RIM will ALSO have. Those I think are pertinent facts for whatever reason you have chose to neglect.

    3. “Thirdly, PlayBook will run on QNX software instead of newly launched BlackBerry 6.0 operating system. This may create confusion among third party application developers to develop any software unique to all BlackBerry products.”

    You think a person who develops code will have trouble understanding the difference between a platform? I think we overuse the term “LOL” however at that comment I think it applies. QNX is a game changer, RIM has positioned themseleves for success moving forward, they have finally changed their OS. QNX is used in space application, the army, and even high end vehicles. Please do some research instead of posting a completely biased view, with no competent supporting arguement. And to top it all off, you do realize that RIM is phasing out their old OS and plans to integrate it next year into their smartphone? They will not have OS 6 instead it will be QNX, and of course this will be fixed with a simple software update. If you look at their leaked specs for their phones you will see that they are finally upgrading the hardware to what people expect. I agree with you that they did drop the ball and let the competition catch up. Well all I can say is that someone gave up a wake up call, and judging by the acquisitions they have made in the last year, their future is very bright. Here’s to the eventual dual core phones that will be out next year, once QNX starts using those cores, the possibility is unlimited.

    The person who wrote this is totally oblivious of what is happening with RIM. Perhaps instead of being neutral on RIM, they should be neutral when giving opinions.

  3. Unlike the iPad, many Blackberry (RIM) customers will likely get to expense their Playbook purchase.

    It also looks like they have a huge opportunity in health care (specifically hospitals) thanks to their reputation in security.

    Even if their marketing efforts have a different focus, I am sure they will find opportunity and profit.

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