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Needham initiates RIMM coverage at ‘hold,’ says growth unsustainable with Apple iPhone 2.0 looming

Wednesday, April 9, 2008 · 10:49 am · 30 Comments

Needham has initiated coverage on Research In Motion (RIMM) with a “Hold” rating.

The firm believes that RIM’s” BlackBerry growth is unsustainable as Needham expects ‘far more versatile applications’ to enter the market. Needham specifically names new applications on Apple’s (Nasdaq: AAPL) iPhone during the second half of this year,” StreetInsider reports.

“As investors have recently been speculating about the high-profile release of a 3G iPhone, many pundits have been suggesting taking profits in Research of Motion as this Apple product will likely be RIMM’s toughest competitor,” StreetInsider reports.

Full article here.

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Comment Feed

30 Comments

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I'm With Crazy

Wednesday, April 9, 2008 - 2:10 pm · Reply

Right on.

RIMM is not about to fall apart because Apple has a good competing product.

We WANT competition, it spurs innovation and mitigates stagnation.

This IS a Mac fan site, I understand that, but we need to guard against treating every Apple competitor as an enemy.

Except Micros**t that is.
mark

Wednesday, April 9, 2008 - 2:52 pm · Reply

@crazylegs: good responses. i’m with you that RIM will be around for a long time but i think Apple and Nokia will capture most of the smartphone handset sales growth.

RIM did innovate with the early Blackberrys in terms of functionality and UI but i really haven’t seen anything in awhile. the smaller handsets are nice but lack innovation. (when Apple simply changes the form factor of an iPod, i don’t see that as major innovation either). maybe you’ve seen something that i haven’t?

as for the network service (push email and blackberry servers), again, there was innovation in the beginning but i haven’t seen any innovative functionality added. they’ve been small improvements on the margins but haven’t branched out into additional business services (or consumer-oriented services). yes, i agree that this service is RIM’s real jewel, but how big is the moat around it? to date, it hasn’t been breached but will most people settle for good enough on push email, thus, relegating RIM to a business niche? (and if this is the real jewel, should RIM exit the handset business and sell their service on handsets made by others?)

i don’t have any comprehensive survey about people having low confidence in RIM. Needham revealed its low confidence. for the reasons above, i have low confidence. and in my work area, almost all (20-30 people) use blackberrys today but only 2 show any brand loyalty to RIM (i.e. someone who says “my blackberry is so good, i’d choose it over an iPhone with push email”). btw, 1 of the 2 is an Apple hater (never says anything good about any Apple product). when they’re questioned, they just don’t expect RIM to come out with something better anytime soon; that to me is lack of confidence. maybe it’s Apple marketing and hype that accounts for this, but maybe not.

finally, RIM sold over 4 million units last quarter, but only signed up 2.18 million new subscribers, which means about 2 million units were replacements for previous units. since they’re selling in many more countries than Apple, relatively speaking, that’s not very impressive.
Blue Dream

Wednesday, April 9, 2008 - 4:49 pm · Reply

RIM needs to get out the door something revolutionary and radical, or they will begin the spiral. I hope they survive and compete well, as that will make the next iPhone even better. Competition is a good thing as long as it is the two best modern and quality products.
Predrag

Wednesday, April 9, 2008 - 5:16 pm · Reply

I have to agree with Mark, as well as the original article. The point of the opinion is that RIMM’s growth cannot be sustained, and it is a consequence of the iPhone. It’s growth so far has been extremely rapid, but it has been unimpeded. Remember, iPhone has been on the market for only 9 months. It has been designed and sold for consumers, NOT for enterprise (despite some valiant efforts of shoehorning it into the enterprise). Beginning this summer, it will be targeted to the enterprise as well (RIMM’s private playground). The unprecedented launch of iPhone, as well as the significant and constant addition of features to it, clearly indicates that the growth curve can only rise. BB is present in a large global market; iPhone in a few countries.

I would say, it is time to begin trimming RIMM positions and perhaps acquire some AAPL LEAPS (perhaps Jan 10 calls). As the author said, it will be very difficult to sustain RIMM’s growth in the coming months (not to mention years).
Crazylegs

Wednesday, April 9, 2008 - 6:22 pm · Reply

myopia is a bitch. i find it funny that everyone sees the 3G iPhone as a panacea. it isn’t. it will be a cool, if not the coolest device ever, BUT Apple has to be very careful about how they approach this as there’s this thing called physics that limits what one can do. to balance a huge screen, a fast processor, and a 3G radio, all of which are power hogs, could limit the near term potential if battery life suffers to the point of disappointment. I hope they figure this out, but how long has Apple been in the wireless business?

RIM has been in it for 20 years, so they bring tremendous experience to the table. Do not underestimate their focus and ability to deliver a good end user experience. in fact, doesn’t anyone wonder why RIM hasn’t really jumped into 3G yet. They don’t do something unless it’s ready for prime time. hmmm, designing market ready products with the end user in mind sounds like another great company i know of…

if you look under the hood on RIM’s technology you see a few things that give them tremendous advantages. first, they use significant compression techniques which reduces bits delivered. second, their system does not require an “active”sync but a simple push of the bits required to get the data on the device. this reduces time that the radio is transmitting which increases battery life significantly. i notice a huge power drain on my iPhone when i set it to check my exchange server every fifteen minutes. all that time that you see “connecting” then “checking mail” really burns battery. third, active sync requires an incoming ping from the device, so enterprises will just love opening up their firewalls to these pings. no need for this using RIM’s system.

RIM is not standing still waiting to get knocked off by iPhone. Interesting enough, no one mentioned the iPhone on the last earnings call. i found this fascinating as nokia and motorola sure heard iPhone over and over on their calls.

Now, to really drive you guys nuts I’ll make this bet:
RIM’s growth will actually accelerate slightly over the next year. study the mobile market closely and you will find the reasons. they’ll run like they’ve got crazylegs! iCal it, put it on the board!

the good news is that iPhone will accelerate as well. i’ve said my piece, now we’ll watch how it unfolds.
Anonymous©

Wednesday, April 9, 2008 - 9:16 pm · Reply

@crazy, The posts before yours hardly seemed “vitriolic”. More like a little happy gloating for the long underdog, Apple. Of course, I see Blackberry doing fine in the long-term. Lots of room for Blackberry to grow. However, their share price has probably gotten past where it belongs. Their PE and PEG don’t seem to justify its valuation.
MobileAdmin

Wednesday, April 9, 2008 - 10:09 pm · Reply

Some great posts and the usually Iphone will conquer the world drivel.

Users fail to see the huge side to the RIMM solution being the server that controls everything related to the device, from an enterprise this is a vital part. The devices are just half of the solution. Mobility is exploding, it has a business AND a personal lifestyle side to it. The merging of this is going to take awhile. If you think diffrenlty try bringing your home pc into work and expect it to function the same.

Working through the OS 2.0 beta I will say the nightmare reminder of setting up and deploying devices through a desktop. The forcing activation through itunes is smart on Apples part but ridculously long and cumbersome. Our firewall was 1st blocking the Itunes Store (needed for activation) and the actually OS loading is simply sporadic. I’ve averaged 3 loads before the OS installs properly. This solution is simply not going to work in the corporate world it will likely be the #1 thing they will hear about from other companies. With Blackberry there is zero footprint on a user pc and all activation is fully wireless, from out of the box to activated and working is less then 30 minutes. But hey maybe companies will just let users brick their iphones and their own their own right?

And if CrazyLegs brings up very good points about RIMM’s core value to mobility – battery life. Everytimes they change and add a feature they see how it impacts battery life. ActiveSync is a PIG .. I’ve never had a Windows Mobile device last a full day and imagine the iphone will need some tweaking to get some power back, dim the screen etc. Battery life matters, no one enjoys a cool gadget that needs to be plugged in all the time.

And the cost part is 100% not accurate at least on the corporate pricing.

Iphone 8gb – 399
Corp voice / data – 79

Blackberry 8800 – $49 – free depending on carrier
Corp voice / data – pooled bucket – 69

Multiply that out for scale

RIMM’s PR event of the year is 4 weeks away and I’m willing to wager they start laying some smack down, their last earning report doesn’t make them look weak.

I think the big thing everyone is watching is when people start rolling off their current 2 year plans .. do they go with an iphone for $200-300 or the $50 pearl. Apple needs a low end device as that is where this battle is won. People want cheap technology.
Crazylegs

Wednesday, April 9, 2008 - 10:35 pm · Reply

@anon – I view a <.5 PEG, 30x forward PE as reasonably priced, not ahead of itself. I believe RIMM will put up $4 this year compared to $2.25 or 77% growth FY2008 to FY2009. the street is around $3.75, so this would represent 66% growth. the valuation appears justified if they hit even the street numbers. if you look backwards it’s easy to make the case it is overvalued trading at 52x LTM earnings, but as stocks are forward looking, I tend to do the same. no doubt if they come in at $3.50 or lower, the valuation will look very full. i just believe that with their global footprint and position within the industry combined with where we are in the smartphone adoption curve, RIM will produce excellent results for the next few years…
Crazylegs

Wednesday, April 9, 2008 - 10:40 pm · Reply

and ditto what mobileadmin said. he gets it.
mark

Thursday, April 10, 2008 - 12:49 am · Reply

“I hope they figure this out, but how long has Apple been in the wireless business?”

This reminds me of what a certain now-former CEO of a former U.S. handset mfr powerhouse said a year before the iPhone launched. That said, Apple could screw it up the second time around and just not be good enough.

btw, I never said the iphone will conquer the world. it won’t unless Apple sells a much cheaper version, and there’s no guarantee that Apple will do that in the foreseeable future. All I’ve said is that RIM’s current growth rate will slow in terms of handset sales. RIM is up against the power of the Internet on a mobile device, and the power of having a computer in a mobile device, both of which will be more evident in iPhone 2.0 and the 3G iPhone. An innovative RIM definitely could counteract that but I’m not confident enough of that to buy RIMM today. They’ll have another really good quarter or even two, but after that, the market may notice, then all bets are off.

Yes, we’ll see how it all unfolds.