Research In Motion Remains Neutral – Analyst Blog

Research In Motion Ltd. (RIMM) delivered more than the Zacks consensus expectations in its second quarter fiscal 2011. The company performs very well with respect to several operating metrics like (1) revenue (2) EPS (3) margins (4) total number of BlackBerry phone shipment. According to our view, the global smartphone market is largely untapped providing a huge opportunity for Research In Motion to sustain its near-term growth. The strong brand value of BlackBerry is expected to keep the earnings momentum high for the company.

 

Despite the above mentioned positives, we remain concerned regarding the company’s net subscriber addition which is directly related to its Service segment revenue and precipitous decline in ASP which indicates a product-mix in favor of low end BlackBerry. We thus maintain Neutral recommendation for Research In Motion, which means the stock will perform mostly in line with the broader market.

 

In spite of global economic slowdown, smartphones are expected to become the next-generation choice, taking over the market share from basic mobile handsets. Various industry sources predicted that smartphone shipment will nearly triple by 2014 making a much larger share of total mobile handset shipment. This grand opportunity provides massive scope for Research In Motion to retain new users and grow revenues moving forward. The company has established effective sales distribution networks with 565 wireless carriers in over 175 countries.

 

The company significantly expended its geographical reach. In the second quarter of fiscal 2011, around 52% of total revenue was generated outside the U.S. and over 45% of total BlackBerry subscriber base is now from outside North America.

 

On the other side, during the second quarter of fiscal 2011, the company added only 4.5 million net new subscribers, well below its own guidance of 4.9 million – 5.2 million. Furthermore, management has decided not to disclose this figure and ASP (average selling price) from the upcoming earnings conference call in line with industry practice. We remain highly skeptical about this announcement.

 

Unlike other mobile phone manufacturers, net subscriber addition is directly linked to the company’s Service revenue which accounts for nearly 17% of its total revenues. We suspect the company may fumble in North America particularly against growing pressure from Apple Inc’s (AAPL) iPhone and several Android-based smartphones. Android OS is developed by Google Inc. (GOOG).