Earning Preview: Research In Motion - Analyst Blog

Research In Motion Ltd. (RIMM) will announce the third quarter financial results of fiscal 2011 on December 16, after the closing bell. We expect the earnings momentum to continue for the company due to two reasons. First, third and fourth quarters of fiscal year generally remains seasonally strong for Research in Motion and secondly, the global smartphone market for high-end customer is vastly untapped. This will naturally provide a growth opportunity to a formidable player like Research In Motion at least in the near-term. The recent Zacks Consensus Estimate revision trend supports our view.

Agreement of Analysts

Out of the 46 analysts following Research In Motion, in the last 30 days, 7 analysts revised their estimates upward for the third quarter and 10 analysts did so for the next quarter. Only 1 analyst revised the estimate downward for the third quarter as well as for the next quarter.

For fiscal 2011, in the last 30 days, out of 47 analysts covering the stock, 12 analysts have revised estimates upward and none of them revised in the opposite direction. For fiscal 2012, the same trend continues with 11 upward estimate revisions and just 2 downward estimate revisions.

The current Zacks Consensus Estimate of $1.64 for the third quarter of fiscal 2011 indicates a substantial 49.15% gain year over year. Similarly, for fiscal 2011, the current Zacks Consensus Estimate of $6.08 indicates a whopping 39.09% gain year over year.

Magnitude of Estimate Revisions

In synergy with the overall positive estimate revision trend, the Zacks Consensus Estimate for the third quarter and also next quarter's earnings per share (EPS) moved up by 1 cent in the last 30 days. On the other hand, in the last 30 days, the Zacks Consensus Estimate for fiscal 2011 EPS increased by 3 cents and that of fiscal 2012 EPS by a huge 9 cents.

Immediate Challenge

Despite the above mentioned positives, Research In Motion is facing several near-term challenges. The company faced difficulties when Apple Inc. (AAPL) launched its first iPhone. In addition to iPhone, the smartphone market is now experiencing a wave of Google Inc.'s (GOOG) Android software-based devices. Motorola Inc. (MOT) is gradually revamping its fragile mobile phone segment using Andriod. Low-cost producers like HTC, LG Electronics, and Samsung have also become major threats to the company.

In fact, BlackBerry is quickly losing market share to iPhone and Andriod-based smartphones in its core enterprise market. Research In Motion desperately needs BlackBerry to outperform the market. Failing which the company will face serious problems about remaining competitive in a market which is very rapidly changing in terms of technology, price, and data plan provided by the carrier.

According to our view, Research In Motion has to deliver in its third quarter on all operating fronts (1) revenue (2) EPS (3) margins (4) number high-end BlackBerry phone shipment. Failure on any one front may significantly impact the stock price.

Silver Lining

Nevertheless, it is also our view that there exist rays of hope for Research In Motion. Firstly, BlackBerry has strong global brand value which may sustain its earnings momentum in the near-future. Secondly, robust growth of 3G smartphones throughout the world has opened up a huge international market for Research In Motion. We believe Blackberry is actually gaining market share especially in the emerging markets at the expense of Nokia Corp. (NOK). Thirdly, solid liquidity position of more than $2 billion of cash & investments and no outstanding debt will enable management to pursue long-term R&D activities for innovative products.

Our Recommendation

In view of the equally strong presence of positive and negative factors, we maintain our long-term Neutral recommendation for Research In Motion. Currently it is a Zacks #3 Rank (Hold) stock.

 
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