“Last [week's] gloomy results from BlackBerry maker Research in Motion, accompanied by a gloomier outlook, only tell half the story,” Tiernan Ray reports for Barron’s. “The worst is, by all appearances, yet to come.”
“RIM reported a fiscal second-quarter profit that exceeded estimates but it sold fewer phones, signed fewer subscribers, and made less revenue than expected,” Ray reports. “The results confirm some of the worst fears expressed by this column on June 19, namely that Research in Motion’s once high-profit margin business has collapsed permanently as smart phones have gone mainstream.”
Ray reports, “RIM failed in the quarter to deliver the kinds of volume expected by analysts despite falling prices for its wares. The company sold 8.3 million BlackBerries, below estimates for 8.5 million and added only 3.8 million subscribers, fewer than expected. The average selling price of the BlackBerry is expected to drop again this quarter, to $320, below estimates of $340. Margins will come under pressure because the company has been shipping cheaper phones such as the Curve 8520, but it will have higher manufacturing costs as it rolls out expected revamps of the high-end ‘Bold’ and the touch phone ‘Storm.’ It will only become harder to not lower prices with the $99 Apple iPhone showing up increasingly on episodes of House and 30 Rock, further swelling the Apple hype machine.”
“The second leg in RIM’s troubles could come if RIM’s network strategy fails to play out. For some time now, RIM co-CEO Jim Balsillie has contended that as data traffic rises on networks, RIM will be in the pole position because it can shoulder the cost of increasing capacity,” Ray reports. “But that proposition won’t mean anything if RIM can’t offer the phones people use to stream video, download applications, and, eventually, engage in videoconferencing.”
“Three things could help RIM: a takeout by a larger company with smart phone ambitions; RIM’s own acquisition of Palm; or new employment for millions of stock brokers, which would boost RIM’s enterprise sales,” Ray writes. “Take a bet on all that if you will. The fundamentals speak for themselves, and they only suggest that business will get tougher from here on out.”
Full article here.