Skip to main content
technology

Even some of the analysts bearish on Research In Motion Ltd. expect the company to beat expectations when it announces quarterly results on Thursday, an event that might give another boost to the BlackBerry maker's shares.

The question is whether the good news will mark a sustained turnaround in RIM's fortunes, or just a respite before more troubles.

RIM shares have been on a tear since their summertime lows, gaining more than 20 per cent since the company announced it would enter the tablet computer market next year with its PlayBook product. It beat estimates by a healthy margin for its second quarter, which ended in August.

Mike Abramsky of RBC Dominion Securities Inc. said last week that he expects RIM to exceed his already upbeat forecast for the third quarter, thanks to strong sales of its BlackBerry Torch model.

Mr. Abramsky, who has placed RIM on RBC's "top pick" list and has a $90 (U.S.) target price – roughly 50 per cent above current levels – notes that RIM trades at 9.2 times his earnings forecast for the next 12 months, versus an average of 16 among wireless hardware sellers.

Of course, there are reasons that RIM trades at a low P/E, and one of them is the fact that revenue gains are likely to be harder and harder to come by for a company that was once a Class A growth story.

It's no secret what's dragging down RIM's outlook – a couple of competitors named iPhone and Google Android.

Doug Reid of Stifel Nicolaus, who has a "hold" rating on RIM, says recent comScore data show RIM losing market share to its two competitors. BlackBerry sales grew only 3.5 per cent in October while the smart-phone market expanded 13.7 per cent, iPhone 18 per cent, and Android 57 per cent.

RIM's challenge is that BlackBerry remains more popular with security-obsessed corporate IT departments than with consumers. In the U.S., it took a 50 per cent discount on the BlackBerry Torch from AT&T (reducing the price to $99) to "lift sales meaningfully" among consumers, Mr. Reid said.

Analysts from Bernstein Research interviewed 1,000 smart-phone users in July and found that only 43 per cent of BlackBerry users planned to buy another BlackBerry, 36 per cent were unsure and 21 per cent said they were going to switch.

The figures for the iPhone look a lot brighter: 81 per cent of users would buy again, 17 per cent are unsure and only 2 per cent would switch. "We conclude that BlackBerry doesn't have the fundamentals to defend a premium position much longer," analyst Pierre Ferragu wrote.

Even one of the analysts with a "buy" rating on RIM believes that the company will continue to lose market share. But Robert Cihra of Caris & Co., who has a target price of $75 a share for RIM, says the entire industry will benefit from a rapidly expanding market.

Smart phones make up less than 20 per cent of all cellphones and as more and more people switch to the intelligent devices, revenues for the sector are set to swell. RIM's decline in market share is "overstated in a way, given the avalanche of new smart-phone entries, particularly Androids," Mr. Cihra said.

But to keep growing, RIM must defend its leadership in the corporate market against its two major competitors.

"There has been a steady cadence of corporations announcing test trials for iPhone and Android-based devices and increased competition from devices such as the Motorola Droid Pro that specifically target this vertical," says Susquehanna analyst Jeffrey Fidacaro, who has a "negative" rating on RIM stock but recently raised his target price to $45 from $38.

The PlayBook tablet computer, scheduled for rollout in March, represents a potential growth area for RIM. Yet some analysts wonder whether investors are already expecting too much.

"Given the competitive environment heading into 2011 with the influx of more than 80 new competitive tablet offerings, we believe the requisite volume to support the share price may be challenging for RIM to achieve," Mr. Fidacaro said. He notes that RIM is positioning the PlayBook as a professional device, while most tablets will be targeted to the much larger consumer market.

Mr. Fidacaro expects RIM to sell eight million PlayBooks in its first year, below the 10 million that many observers appear to be expecting, and his estimate is not the lowest. Rodman & Renshaw's Ashok Kumar, who has a "market perform" rating and a "fair value" estimate in the "mid- to low $60s," forecasts RIM will ship three million to five million PlayBooks in 2011.



---------------



A range of analyst opinions in advance of Research In Motion's third-quarter earnings Thursday:



Mike Abramsky, RBC Dominion Securities



Buy (top pick), $90 (U.S.) target price



"A Q3 beat and rising Q4 outlook may further refute the most bearish outlooks"



Alexander Peterc, Exane BNP Paribas



Neutral, $60 target price



"We downgrade the stock to Neutral as our target price has been reached, with no further near-term catalysts before the PlayBook launch in fiscal Q1 12."



Pierre Ferragu, Sanford C. Bernstein & Co. LLC



Underperform, $40 target price

"We expect RIM to enter an area of turbulence in the next two to three quarters as the support of the Torch launch disappears, growth momentum continues to slow and margins come under pressure."







Special to The Globe and Mail

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe