Was RIM's Wall Street beating unjustified?

Was RIM's Wall Street beating unjustified?

Summary: Shares of Research In Motion got hammered to the tune of more than 27 percent to close the week - this despite a quarterly earnings report yesterday that included a 72 percent jump in profit from a year ago. That just goes to show that, especially in the quick-growth, suddenly-crowded smartphone business, you're only as good as your next quarter.

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Shares of Research In Motion got hammered to the tune of more than 27 percent to close the week - this despite a quarterly earnings report yesterday that included a 72 percent jump in profit from a year ago. That just goes to show that, especially in the quick-growth, suddenly-crowded smartphone business, you're only as good as your next quarter. And for RIM, that doesn't look as good.

It's not enough that RIM, which once dominated the smartphone business in the corporate market, is being challenged by the likes of powerhouses Microsoft, Apple and now Google, with its Android operating system. Now, as so many of the players in the game go after the ripe consumer market, the outlook for the key holiday season is clouded by a crashing economy.

Like Apple, RIM is both software and hardware, the Blackberry (and the iPhone for Apple.), which means they're managing both sides of the equation. Microsoft's Windows Mobile runs on a number of devices manufactured by partners - the Nokias, Samsungs and LGs of the world. Google's Android is subscribing to that same strategy. The market is growing quickly: Smartphones now account for almost 10 percent of mobile phones in the U.S., as of July 2008, an increase from 4 percent in July 2007, according to comScore M:Metrics.

Here's two things worth noting: The number of subscribers more than doubled during the same period, from 9 million to almost 20 million and teens 13-17 saw the biggest jump in the adoption of smartphones. In that age range, the number of mobile subscribers was mostly flat year-over-year but the number of smartphone users in that age range jumped 44 percent in one year.

RIM is smart to sacrifice margins now to try to grow subscribers and hook those kids to the Blackberry platform instead of the iPhone or Android. (My 12-year-old daughter is dropping hints for a Blackberry Pearl for Christmas, giving up on the iPhone because she knows our family plan is tied to Verizon Wireless.) Larry Dignan wrote in his earnings report entry yesterday:

(RIM CEO Jim) Balsillie made a good argument that the company should sacrifice margins today to grab the most platform market share. Balsillie said the mobile market is undergoing a sea change and RIM would be foolish not to expand aggressively. He noted that investors need to determine whether they want margins today or a platform that can be leveraged years into the future.

It's not enough, though, to gain customers because of the shortcomings (iPhone tied to AT&T) elsewhere. It's going to take a diverse product line (check) tied to a variety of wireless carriers (check) and an catchy marketing campaign like the one that shows icons of the various applications morphing together to form a Blackberry (check). It's no Jerry Seinfeld but I do remember it. Still, it might be better to spend some marketing and advertising money and really get aggressive about locking in that market of new subscribers (and help stimulate the economy, too.)

If investors could force themselves to look beyond the next quarter or the next year, then maybe the beating against RIM today might have been a bit more tame. But then again, if investors started looking at the long-term, lawmakers in Washington might not be spending this weekend hammering together a financial bailout plan that is bound to have implications that last longer than a sluggish holiday shopping season or an aggressive advertising campaign.

Topics: Smartphones, Hardware, iPhone, Mobility, BlackBerry

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6 comments
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  • To Sam's daughter

    Don't give up on the iPhone. You will be the cool kid and the kid with the Ho Hum Blackberry that all of your friends have.

    Plus, Your Dad can afford that one AT&T account for you with unlimited texting. :-)

    As for the beating RIM took. I think we saw that coming for all of the companies. RIM, Apple etc. I got Apple when the getting was good and bailed when the profit was phenomenal. The market and economy are too unstable for any of these companies.
    GoneFromZDnet
    • I agree...

      ...RIM was horrendously overvalued because its share price was based on unrealistic growth assumptions - at one time it had a PE of about 45 which is crazy. The same can be said to a lesser extent about Apple.

      I don't think RIM are failing and they still dominate - and by quite a margin - the corporate market, at least in America, they were just never going to meet the expectations of the idiots on Wall Street.
      Sleeper Service
  • RE: Was RIM's Wall Street beating unjustified?

    microsoft and google (and soon nokia with symbian going
    open source) don't have the same strategy. a windows mobile
    license is 15$ a unit. android and symbian are / will be free. so
    i think you will have two successful strategies in the
    smartphone market: vertical (apple and rimm) and open source
    / free (android, symbian). no place for microsoft (their
    business model here has become obsolet: who would pay for a
    license if you can get a better OS for free and wm 7 delayed
    another year won't help neither). so for the vertical part of the
    market the question comes down to: how can rimm hold up
    against apple in the future? i think wall street yesterday
    answered that question: probably not very good.
    bannedfromzdnetagain
    • Not at all

      [i]no place for microsoft (their business model here has become obsolet: who would pay for a
      license if you can get a better OS for free[/i]

      It has been shown that free is not as free as one would think. A fifteen dollar Operating System with support is a much better bargin then a free Operating System with no support.
      GuidingLight
      • True.

        Since handsets are largely subsidised by carriers anyway the cost of the OS is a moot point.

        There's room for all of them at the moment and I actually expect WinMo to increase or maintain share based on the new devices from HTC and Samsung.
        Sleeper Service
  • Honestly, I think there is something dysfunctional wrt the stock market

    It isn't just RIM, you can almost count on an earnings report casing any stock to go down. It is like they bring the (imho) super inflated valuations of many stocks into consciousness. Remember when stocks used to provide real revenue as dividends on almost 100% of them? Now, you get some, once in a while paying dividends. That makes the paper itself the only value.

    Beyond the actual selling off of a companies assets, in terms of returned money, the entire value is simply 100 million people trying to shuffle things around to edge others without regard to what the actual real value of something is.

    I think that is why short sellers have the ability to seriously manipulate the market, causing the very thing they are betting on, and earnings reports are simply a form of short selling. Wall Street sets expectations, but people are HOPING for massive beating of the estimates, it doesn't happen, the run starts.

    Take heart, in a week or so, the earnings report will be forgotten, and back to the normal shuffling game, they will recoup most of the "loss" by then.

    TripleII
    TripleII-21189418044173169409978279405827