×

RIM Feels the Pressure

There was a great scene in "The Princess Bride," the sword fight featuring Inigo Montoya and the Man in Black, both exceptional swordsmen, Inigo unable to thwart the man's attacks and unable to divine the man's identity, Inigo asks "Who are you?" The man responds, "No one of consequence." "I must know," says Inigo. "Get used to disappointment," is the man's response.

'Kay.

Research in Motion shareholders may not be so accepting, but they are facing some disappointing and challenging times ahead. This company is in a pitched battle with Apple and a dozen other smart phone makers, and while it is an exceptional swordsman, it faces a daunting task: Not merely adding subscribers, but keeping the ones it already has. The fact is, Motorola's Droid is performing well, and Charter Equity for one believes that it is stealing meaningful market share from RIM. The company's stock has been under enormous pressure despite positive blips last week connected to RIM's entry into the Chinese market. But these blips don't seem to be enough to stem the pessimistic tide facing this company and its outlook.

Get used to disappointment.

rim_headquarters1.jpg
Nsd

The other problem for RIM, and it's a big one: Blackberry giveaways.

This was an intriguing strategy a few quarters ago, and dramatically helped the company grab market share. The buy one/get one free approach did wonders for the number of Blackberrys in the marketplace, as well as the number of new subscribers the company was able to sign, but short term gains come at longer term costs, and the company's average selling prices — as well as margins — have taken a beating. Charter goes so far as suggesting that 2010 will be a "restructuring year" for RIM.

Look, I'm not suggesting that RIM is going to go away any time soon, nor am I suggesting that RIM is fast-becoming an also-ran in favor of flavor-of-the-month handset stories like the ones coming from Google. I still think the market is very much about RIM and Apple, and everyone else is trying to gain market share. It's just that there's a lot of "everyone elses," including Palm, Motorola, Google, Nokia and all those phones running Windows Mobile. Nationwide, smart phones make up about 40 percent of the market, but only about 19 percent globally. There's still lots of room to grow this segment and RIM has proven time again it’s a bad company to bet against.

Like Apple, RIM is an expert in smart phone design, manufacturing, marketing and selling. Google? Not so much. So the advantage is in Waterloo, not Mountain View, even though the Google Android operating system seems to be gaining momentum, and there's been so much said recently about the company's upcoming Nexus One "hero" phone.

Analysts are looking for $1.04 a share from RIM tonight, up nicely from the 70 cents a share the company reported during the same period a year ago. Sales should rise 37 percent year over year to $3.8 billion. Look for the company to announce it shipped just shy of 10 million units during the quarter (as a comparison, Apple likely shipped around 8 million), and added around 4 million subscribers. Margins are key for this company, especially amid so many giveaways, with analysts anticipating a sequential drop to 47 percent from 51 percent in the prior quarter.

So where to go from here? Short of a marked improvement in the company's outlook, it looks as if RIM will stay stagnant for the foreseeable future. If you've got the stomach to wait it out, you'll probably be rewarded. It's just that this might be a long wait with the very real concern that so many other competitors are hardly standing still. Today's outage news certainly doesn't help RIM's story either.

Get used to disappointment.

Symbol
Price
 
Change
%Change
VOW3
---
GOOGL
---
MSFT
---
NOKIA
---
BB
---

Questions? Comments? TechCheck@cnbc.com