RIM's first quarter: What to watch

Research in Motion delivers its first quarter results Thursday and most analysts expect strong financials, but questions remain about the company's ability to fend off rivals without sacrificing profit margins.Wall Street is expecting RIM to report earnings of 94 cents a share on revenue of $3.

Research in Motion delivers its first quarter results Thursday and most analysts expect strong financials, but questions remain about the company's ability to fend off rivals without sacrificing profit margins.

Wall Street is expecting RIM to report earnings of 94 cents a share on revenue of $3.5 billion. In its fourth quarter, RIM projected earnings between 88 cents a share and 97 cents a share.

Here's a look at the key factors in the quarter:

Shipments and gross margins: Deutsche Bank expects RIM to ship 7.88 million units with gross margins of 43 percent. RIM's average selling price is expected to be $350.

RIM's roadmap: Caris analyst Robert Cihra expects RIM to remain on an "evolutionary not revolutionary path in terms of its models. Cihra writes:

We continue to get feedback from GSM operators that RIM keeps pushing more EDGE models at them, and while this could risk being too “evolutionary” vs. revolutionary, we think it reflects a strategy to drive lower-ASP units (e.g., we estimate $329 ASP by FQ3) but while also cost-optimizing using more established platforms. Looking over the next couple quarters, we expect better margin profile in upcoming models like the Tour (i.e., leveraging Storm’s innards but without touchscreen) and a potential wildcard in the low-end/priced, but likely still-decent margin EDGE based Curve 85xx/Gemini, which we actually expect to be both explicitly cost optimized and perhaps RIMM’s first to specifically target prepaid markets.

The outlook: Most analysts are expecting RIM to top estimates and raise the outlook for the second quarter. Wall Street is currently expecting RIM to report second quarter earnings of 99 cents a share on revenue of $3.67 billion. Deutsche Bank analyst Brian Modoff wrote in a research note:

Our concern as we move into the backhalf of the year is increasing competition in the smartphone market from existing players such as Apple, Palm, and Nokia, as well as multiple launches (at least 12 different devices) on the Android platform from vendors such as Motorola, Samsung, HTC and LG. Further, carriers, such as AT&T, will be pushing for broader mobile data adoption by consumers via lower cost data plans enabled by cheaper smartphones with wholesale ASPs in the $200-$300 range, pre-subsidy. We believe this shift will cause increased pricing pressure in the sector should new devices from RIMM's competitors prove appealing to consumers.

Can RIM drive units without Verizon's buy one get one free promotion? William Blair noted that Verizon has shelved its two-for-one BlackBerry promotion. That's likely to make RIM's pricing more volatile since Apple is driving smartphone prices. It's likely that RIM will have to hit the $99 price point.

What will RIM do with Dash? Analysts were also interested in RIM's Dash acquisition. Dash, a GPS system developer, could give RIM the ability to network BlackBerry users together.

Newsletters

You have been successfully signed up. To sign up for more newsletters or to manage your account, visit the Newsletter Subscription Center.
See All
See All