RIM (RIMM) under Pressure from Rivals

Posted by on Jun 21, 2010 | No comment

Research In Motion, (Nasdaq: RIMM)(RIM), is expected to post its first-quarter fiscal results on June 24 following the close of trading.

With demand for smart phones exceptionally strong globally, the maker of the iconic BlackBerry’s is expected to post a 33% increase in net income for the quarter ended May 31.

RIM’s devices currently hold approximately 45% of the U.S. market and 18% of the international market, and are especially popular with corporate managers who like the high level of reliability and security offered by the BlackBerry.

But RIM has recently seen its market invaded by rivals.

Apple’s (Nasdaq: AAPL) iPhone is moving in as a strong competitor overseas, and is becoming the handheld of choice among many corporate managers. In addition, smart phones operating on the Android operating system from Google (Nasdaq: GOOG) are selling briskly, including Motorola’s Droid and the HTC Incredible.

Investors fearing a crowded smart phone market have beaten down shares of RIM by 20% during the past three months.

“While RIM’s growth has been fueled by international and consumer growth, we see increasing challenges on these fronts as Android adoption continues at brisk pace,” wrote Jim Suva of Citigroup in a note to clients. Suva expects promotions by carriers to favor the Android.

Wall Street consensus for RIM’s earnings is $1.35 per share for the first quarter, up from 98 cents for the equivalent period last year, according to FactSet research.

Analysts expect RIM to report 11.5 million units shipped for the quarter and sold at an average price of $306. Five million additional subscribers are anticipated for the period ended May 21, according to MarketWatch.

RIM’s rapid revenue growth has slowed to a double-digit rate year-over-year, with the latest quarter’s growth expected to come in at the lowest for the past six quarters. Revenue, however, is expanding more robustly compared with other sectors.

“We acknowledge RIM has some heavy lifting ahead given fierce smartphone competition,” wrote Oppenheimer’s Ittai Kidron in a report. “But we believe it remains well positioned in the smartphone market with strong international growth opportunities.”

Kidron’s assessment of investor sentiment on RIM “is overly bearish reflecting doomsday concerns of spiraling share declines.” But he noted that the stock appears relatively “cheap” at 11 times forward earnings.

Investors await RIM’s new handset and its update to the device’s operating system.

After its sneak preview at a company event in April, the company said its new software will launch late in the quarter, but may be too late to generate enough handset sales for the quarter.

RIM has kept its new devices under wraps, but also have been the subject of many leaks from bloggers who believe the new devices will include a “slider BlackBerry,” featuring a touch-screen and slide-out keypad.

RIM has “a solid line-up of products shipping in the August quarter,” said Mark McKechnie of Gleacher & Co., including new versions of the BlackBerry Pearl and Curve models. McKechnie rates the shares a “buy,” and expects BlackBerry to perform well despite increasing competition.

“RIM is not out of the woods in terms of the challenges it faces from tough competitors such as Apple and Google in the consumer market, and in improving its execution,” wrote Michael Urlocker of GMP Securities. “That said, we think RIM will benefit from an industry macro trend of users upgrading to smart phones from feature phones.”

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