We are maintaining our cautious stance on Research In Motion Ltd. (RIMM) given the company’s mixed performance in the fourth quarter of 2011.
Research In Motion declared mixed financial results for the fourth quarter of fiscal 2011. Although EPS beat the Zacks Consensus Estimate, revenues fell below the estimate. The company also provided a weak outlook for the ensuing first quarter of fiscal 2012.
Management was forced to provide a depleted outlook due to huge competitive pressure in the smartphone market coupled with a loss of market share and lower Average Selling Price (ASP). Like Nokia Corp (NOK), Research In Motion is also going through a transition phase.
The communication equipment industry is characterized by rapidly changing technology along with evolving industry standards. In order to counter such threats, the company is spending heavily to upgrade its product life-cycle.
In synergy with its upgradation policy, Research In Motion launched its PlayBook tablets. However, the product received a lackluster response, which in turn put the company on the back foot. Despite these headwinds, the company commands a dominant position in the wireless PDA market leveraging the popularity of its push email system.
The BlackBerry brand is well established and is easy to use, facilitating upgrades to newer Blackberry handsets. 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.
Most of its expenses will be offset by healthy subscriber additions in the near future, in our view, since most of the emerging markets are on the verge of large-scale deployment of 3G networks.
Booming smartphone markets and strong fundamentals, coupled with Research In Motion’s strong brand value and smartphone line-ups will act as positive catalysts for growth. Despite these positive factors, we expect stiff competition from Google Inc.’s (GOOG) Android-based smartphones and Apple Inc.’s (AAP) iPhones to result in loss of market share.
Moreover, product delays, huge margin pressure, tepid response from newly launched tablets and lack of popular product launch will act as headwinds for the stock.
We, thus, maintain our long-term Neutral recommendation for Research In Motion Ltd. Currently, Research In Motion Ltd has a Zacks #3 Rank, implying a short-term Hold rating on the stock.