To the market, it is a foregone conclusion that Apple (Nasdaq:AAPL) has all but won the smart phone war with its technically-savvy and popular iPhone. There is no denying that Apple has a first-move advantage and has made a stunning foray into the mobile phone market, but advantages in the technology industry usually don't last long. Just ask Research in Motion (Nasdaq:RIMM) and its Blackberry wireless franchise, which investors have effectively left for dead. (Learn more about evaluating companies for yourself; read 5 Must-Have Metrics For Value Investors.)

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Second Quarter Sales Review
RIMM's revenue increased 31% and reached $4.62 million. The industry is also big on sequential growth trends, and RIMM experienced 9% growth from the first quarter. RIMM announced that 79% of sales stemmed from hardware (phones and related devices) and the company shipped a record 12.1 million devices during the quarter, added 4.5 million new subscriber accounts and ended the quarter with over 50 million subscribers. Another 17% of the top line came from services related to its phones, 1% stemmed from software and 3% came from the other revenue category.

Profit Recap
Lower product costs sent gross margins up slightly to 44.5% of sales. R&D expenses jumped 37.2% to 7% of sales. Selling, marketing and administrative costs also jumped, growing 27.1%. A lack of litigation charges helped temper total operating expense growth to only 7.9%.

This pushed operating income ahead an impressive 65% to $1.1 billion, or an impressive 23.5% of sales. Net income increased almost as much, rising 67.5% to $796.7 million, or $1.46 per diluted share and beat analyst quarterly projections.

RIMM expects third-quarter sales between $5.3 billion and $5.55 billion, and earnings in a range of $1.62 to $1.70 per diluted share. For the full year, analysts currently expect sales growth of almost 25% to just under $19 billion and earnings of $5.53 per share.

Bottom Line
Given the current earnings expectations, shares of RIM trade for only 8.2-times forward earnings. In contrast, Apple is trading near 20-times forward expectations. Concerns are numerous and include expectations for Blackberry to lose market share this year for the first time, with global share dropping closer to 36% from about 40%. Others believe the hardware isn't up to snuff with Apple or new Motorola (NYSE:MOT) phones. Android software from Google (Nasdaq:GOOG) is also proving popular and has revived Motorola's fortunes and other rivals that use it as the brains behind their hardware.

The Blackberry Torch was recently released and will go head-to-head with the iPhone as an exclusive offering from AT&T (NYSE:T). Overall, the space remains intensely competitive, but the overall pie continues to grow worldwide and at the current valuation the risk/reward tradeoff looks to favor an investment in RIMM as it doesn't need to grow much to justify where the stock is currently trading. (For more, see Smartphone Wars: Revenge Of The Droids.)

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Tickers in this Article: RIMM, AAPL, MOT, GOOG, T

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