Research In Motion Ltd. is expected to hit first-quarter financial targets when it posts results Thursday, but any satisfaction may be dimmed by the heightening battle it is facing with chief rival Apple Inc. and its newly-released fourth-generation iPhone.
Investors already know that Apple blew past sales expectations for its latest smart phone, after the company said it took more pre-orders for the device in a single day last week than for any other product in Apple's history. Consumers placed orders for more than 600,000 of the latest iPhone. But RIM's numbers have been less stellar in the face of competition from both Apple and from Google Inc.'s Android mobile phone software platform.
Some analysts say North American shipments of BlackBerrys have actually declined in recent months and RIM is now dependent on international markets to maintain growth. There is also concern that the company's long-standing stranglehold on the business market may be weakening as rivals improve their security features. Apple's new iOS4 operating system, for example, adds encryption of e-mail and the ability for an administrator to wirelessly configure, monitor and wipe clean iPhone devices.
RIM's share of the smart phone market fell to 19.4 per cent of the global shipments last quarter from 20.9 per cent a year ago, according to researcher IDC. Apple claimed 16.1 per cent of the smart phone market, up from 10.9 per cent a year ago.
RIM's share price has tumbled almost 13 per cent since the company's last quarterly report on March 31. On Wednesday, the stock gained nearly 3 per cent and will likely show high volume immediately before and after the latest results are released. The shares have a history of volatility around the company's financial reporting dates. Professional traders try to capitalize on that instability, going long or short on the stock, thereby feeding the price fluctuations. One investor group particularly interested in RIM shares has been hedge funds, with more than 100 such firms trading the stock in the first quarter. At least 25 of them sold all their RIM holdings in that period, according to Bloomberg data.
"There's no doubt it's highly volatile, there is a lot of hot money in RIM," said Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto, where he oversees about $12.7-billion in assets, including at least $30-million worth of RIM shares. There is "a constant expectation that management is not up to the task of competing in that very competitive landscape."
Reporting after markets close Thursday, RIM is expected to post a profit of $749.2-million (U.S.) on sales of $4.32-billion for the three months ended May 29, representing year-over-year growth of 33 and 26 per cent respectively.
Mike Abramsky of RBC Dominion Securities is among the most bullish of the 51 analysts following the stock. He rates RIM "top pick" and maintains a $120 price target on the shares based on a 12-month window.
"Valuation reflects ongoing negative sentiment regarding RIM's lagging software/browsing experience and concerns about [North American]share erosion," he wrote in a recent report. "However, strong results and guidance should demonstrate global resiliency of RIM's "crackberry" smart phone franchise, and pending unconventional products and new services may re-inject some excitement into RIM's lineup."
At the other end of the spectrum, Pierre Ferragu, of Sanford C. Bernstein Ltd. rates the stock "underperform" and maintains a $55 price target on the stock. He believes the BlackBerry has lost its "breakthrough differentiation." With most smart phones now able to handle e-mail smoothly, and with the market looking beyond efficient messaging to other features such as web browsing, RIM finds itself playing catch-up to Apple and Google, he wrote in a report published last week.
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"In the elements that underpin the current smart phone experience, BlackBerry-specific technology isn't a clear competitive advantage." In addition, he says the corporate market, which represented RIM's initial customer base, no longer drives the industry's growth, which will mean weaker sales or falling prices for RIM in the medium term.
Mr. Ferragu expects that Apple will begin selling the iPhone through more phone companies over the next 12 to 18 months, eating into RIM's growth potential. At the moment, international sales are fuelling RIM's growth, while North American shipments fell for the first time, sliding 4 per cent year over year during the first three months of the year, he said.
The changing market dynamics present structural challenges for RIM, which risks losing its high-end status in the market and therefore its pricing power, he added.
With files from Bloomberg