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Weak BlackBerry Crop Could Make RIM the Next Palm (RIMM, AAPL, GOOG, PALM)


There was a time when Research In Motion (RIMM) owned the smart phone space. Its ubiquitous BlackBerry unit ruled the roost, and no other handset maker could even come close to it in terms of sales and customer loyalty.  But that was then, and this is now — with the Apple (AAPL) iPhone the gold standard and Google (GOOG) the new up-and-comer with its Android OS. That doesn’t look too good for RIM, and headwinds it faces going forward could stymie the stock’s progress, and that’s bad news for shareholders.

On Wednesday, RIM posted fourth-quarter earnings results that showed an impressive 35% rise in sales. Unfortunately, those sales were mostly in the company’s low-end, low-cost BlackBerry smart phones. A look inside the numbers revealed a 37% gain in Q4 earnings to $710 million, or $1.27 a share, much higher than the profit of $518.3 million, or 90 cents a share, in the same quarter last year.

Revenue also rose, coming in at $4.08 billion.  And while that’s a lot of revenue for any company in just three months, that number was below RIM’s own forecast for revenue of between $4.2 billion and $4.4 billion.  Wall Street’s consensus estimate on the revenue front was $4.31 billion, while consensus the forecast for earnings per share was $1.28.

The reaction to RIM’s latest numbers wasn’t good, as the shares sold off 4.6% in Wednesday’s after-hours trade.  So, is this the beginning of a fall for RIM shares?  Or is their earnings miss much ado about nothing?

As you might expect, the company has already set out to dismiss any notions of trouble.  In conference call following the earnings announcement, RIM Chief Executive Jim Balsillie gave Wall Street the following warning, “Don’t misconstrue something that shouldn’t be misconstrued.”

To be certain, RIM still is selling a whole lot of BlackBerrys, and those units come complete with very high profit margins.  The company also said that it expects earnings in the first quarter to come in between $1.31 a share and $1.38 a share on revenue of between $4.25 billion and $4.45 billion.  That’s well above current consensus forecasts for earnings of $1.23 a share, and right between consensus revenue estimates of $4.33 billion.

Of course, there’s a flipside to the sunny head of the RIM coin.

More so than ever before, RIM faces a very real challenge from rival smart phone maker Apple (AAPL) and its iPhone, and now it also faces competition from Google (GOOG) and its increasingly popular Android operating system.  Though Palm Inc. (PALM) appears to be all but done for, there is still precious little room to grow for RIM as the third-tier provider.

According to a recent ChangeWave Alliance Research Network survey, nearly twice as many consumers were using Android-based phones compared with three months ago.  And while the total number of Android users pales in comparison to either the iPhone or the BlackBerry, the trend is definitely not in RIM’s favor.  In fact, the survey showed the BlackBerry actually slipped in market share from December to March, while Apple continues to add market share.

Another recent survey with negative results for RIM comes from online market researchers Crowd Science.  That groups survey results show that BlackBerry users are more likely to abandon the brand than either iPhone or Android users. Moreover, when asked about their likelihood of buying a particular brand of cell phone or smart phone if the purchase was made the following day, 39% of BlackBerry owners said they “definitely or probably would” buy an iPhone.  About one-third of respondents said they’d switch to an Android phone.

Combine these two clearly negative surveys for RIM with the recent announcement that Apple is developing a version of the iPhone in late summer 2010 that will function in Verizon (VZ) networks, and it all adds up to some strong headwinds facing the BlackBerry maker.  But perhaps the biggest headwind RIM’s stock faces going forward is its own success.

If we take a look at the price chart here of RIM, we see the stock has made a big — yet quite volatile — move to the upside over the past 52 weeks.  Shares have climbed 73% over this past year, and just in the past three months the stock is up over 11%.  The stock also now trades above both its short-term, 50-day moving average as well as its long-term, 200-day moving average.

Given the froth in the shares, and their penchant for sharp downward moves the likes of which we witnessed from September through November, we could be staring down the barrel of a big sell off fueled by a combustible mix of profit taking and a fear that the company’s best days now are behind them.

Article printed from InvestorPlace Media,

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