RIM Readies Earnings Facing "Brutal Competition"
Thursday will be a big day for Research in Motion as the company prepares to release its second fiscal 2009 quarterly earnings into a climate that's either really good, or really bad, for the wireless leader, depending upon who you believe on Wall Street.
The RIM earnings come as the company faces steeper competition now than at any other time in its history. And while CEO Jim Balsillie didn't dismiss the competition outright with me during my interview with him a couple of weeks ago, he also didn't seem to be at all unduly concerned. Never mind that this $100 stock today was about 30 percent higher a couple of short months ago.
Never mind that Bold's release in the US might be slightly delayed. Never mind that the pressure to get the next generation Storm touch-screen out the door on time has to be excruciatingly high. Balsillie tells me he doesn't watch the day-to-day vagaries of Wall Street, that he only worries about things he can control, and that his brain is already filled with those kinds of things. The stock, he assured me, will take care of itself as long as the company keeps executing, and thus far, RIM has had no trouble executing.
The Street is looking for 87 cents a share on $2.59 billion. But Global Crown Capital's Pablo Perez-Fernandez is far more bullish, raising estimates just two days ago and now expecting 91 cents on $2.66 billion. RBC Capital's Mike Abramsky is a little less sanguine at 88 cents on $2.6 billion. Both Perez-Fernandez and Abramsky anticipate 2.6 million subscriptions, and over 6 million units shipped. Perez-Fernandez expects and average selling price is $350, with gross margins at just over 50 percent.
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But guidance is where the RIM story gets even more interesting. Global Crown is expecting what it terms a "blockbuster" back half of RIM's fiscal 2009. For the third quarter, the Street is at 98 cents. Global Crown is now at $1.07 a share. For the fourth quarter, the Street expects $1.10. Global Crown is at $1.20. Both quarter's estimates were raised just this week. The firm writes, "Our new estimates reflect our belief that RIM is exceeding our prior forecast and that our channel checks in the US and Europe confirm our thesis that RIM's products continue to gain momentum despite brutal competition." Then, the report adds, "We believe that the next two quarters will both exceed expectations by wide margins."
Let's go back to that "brutal competition" reference. Apple's iPhone is surging, with Piper Jaffray indicating 5 million units will sell in the current quarter. RBC expects 6.5 million more to sell in the calendar year 2008 fourth quarter. Google's Android operating system will finally come to market on October 22 in the form of T-Mobile's new G1 handset from HTC. And just this morning, Sony Ericsson indicated that it will give Android a long look as a possible operating system for a new group of handsets. All this might sound daunting to a company like RIM, but while all this noise is happening around it, the company's product pipeline has never been more stuffed than it is right now.
On the way: the new Flip, the Storm, the Javelin (a smaller version of the Bold) and the Bold itself which should be in the US market by early October, can all become catalysts for this company. All of that is leading Global Crown to make the unusual call of advising clients to "go long RIMM ahead of this quarterly earnings call. We believe the stock's dramatic pullback over the past two months is a reaction to the market gyrations we have been enduring and overall fear that the current economic slowdown will affect RIM's growth trajectory and profitability. We clearly disagree with the market sentiment..." The firm holds a $225 target on RIMM shares.
I've said it before and I'll say it again: With so much smart phone growth right now, the sector can easily support several big players who can all enjoy significant gains. Just because iPhone and gPhone are looming doesn't necessarily translate into a slowdown for BlackBerry. Some day that might happen, but that day's still a ways, a long ways, off.
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