Tickers in this Article: RIMM, MSFT, GOOG, AAPL
Just when you think things can't get any worse for Canadian smartphone manufacturer Research in Motion (Nasdaq:RIMM) .... Last quarter - the company's fiscal Q3 - Research in Motion did less with more, increasing revenue by 16%, yet still managed to shrink its per-share earnings by nearly 4%. The corporation earned $1.33 per share versus $1.38 for the same quarter a year earlier, though that still topped estimates of $1.32. TUTORIAL: Stock Basics

Salt in the Wound
The company warned that the current quarter would be far more disappointing than first assumed. For the current quarter, earnings are expected to come in anywhere from 25% to 47% below estimates, with revenue falling somewhere around 18%.

The knee-jerk response to 'why?' is - as it has been for a while - fierce competition from Google's (Nasdaq:GOOG) Android-powered devices and Apple's (Nasdaq:AAPL) iPhones. And, the numbers validate the theory. Between the end of January and the end of April, comScore's data shows RIM's market share of U.S. smartphone subscribers fell from 30.4% to 25.7%. For reference, Research in Motion enjoyed 35% of the smartphone market in the first quarter of 2010.

Given the overall trends coupled with a backdrop of serious doubts about the company's future, it's easy to sell or avoid the stock. Before mentally writing the company off though, investors may want to at least look at RIM without the bearish-colored glasses. (Stay calm, play dead and keep your eyes open for attractive valuations. For more, see Surviving Bear Country.)

What's Still Good About RIM
There's no question the company's got challenges ahead. Just for good measure though, investors may also want to acknowledge three positives.

First and foremost, the sharp drop in smartphone market share is mostly an American phenomenon. Research in Motion devices still make up 42% of the smartphones currently in use in Canada. Plus, despite a rocky Q4, 2010's global unit sales for Research in Motion actually grew by 38%. Despite growing challenges during the time, RIM has managed to grow earnings every year since 2005.

Second, while in retrospect it was terrible timing (made worse by delays), the switch to an all new operating platform now makes more sense than doing it later. But announcing that it was on the way may have also postponed sales now - why buy a device that will be made obsolete in just a few months?

Third, the new operating system, currently called QNX, may finally address what consumers are demanding now, after seeing the iPhone, Android and even Microsoft's (Nasdaq:MSFT) tepidly popular Windows Mobile operating system in action - what past Research in Motion devices have lacked. What's that? Access to lots of applications.

What's App?
The Apple App Store offers more than 350,000 apps, while the Google/Android app store offers more than 150,000. Research in Motion only offers about 27,000 apps for its devices. No wonder so few choose it. However, the same basic OS that's now powering RIM's tablet PC (called the PlayBook) will power the new smartphones starting in 2012, then the user will be able to use Android apps just as if it were an Android-powered machine. There's no word yet about PlayBook apps, but with the PlayBook web browser supporting Flash, Java and HTML5 just like a PC or laptop, stand-alone apps may not be missed, or even needed. (For related reading, see Technology Sector Funds.)

The Bottom Line
Research in Motion isn't dead in the water - it's just on hold. The official launch of the new GNX-driven Bold 9900 won't happen until September, and the market's appreciation for its investment potential may not start to build for a couple more quarters. But, that could also be about the time the iPhone euphoria wears off, when the need for a secure and reliable smartphone is re-recognized, and when that forward-looking P/E of 4.1 looks like a bargain again. Until then though, doubters may keep the stock on the bearish side of the fence. (For more, see How To Use The P/E Ratio And PEG To Tell A Stock's Future.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center