Top Tech Stock – Research In Motion hopes PlayBook will Boost Market Position
  • Top Tech Stock; Research In Motion rolls through Mixed Playbook Reviews
  • Research In Motion sinks after Management Recognized Weaknesses
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    Research In Motion plunges on Disappointing Q1 FY 2012 Outlook

    Research In Motion Limited (NASDAQ: RIMM) plunged nearly 10% this morning shortly after the company’s outlook for fiscal 2012 fell short of analyst expectations. The lower-than-expected-results for upcoming quarters were seen by the market as an indicator that RIMM is not expecting stellar performance from the approaching release of PlayBook computer tablet.

    The decline in RIMM stock price has annihilated this year appreciation caused by an upgrade of the company’s rating based on aggressive estimates of PlayBook sales. However, the successful launch of Apple Inc.’s (NASDAQ: AAPL) iPad 2, as well as the growth of Samsung Electronics Co.‘s Galaxy Tab sales have significantly questioned the market potential of PlayBook. With a 52 week range of $42.53-$76.78, the March 24 trade is in the middle of that range.

    RIMM revolutionized the mobile industry with the introduction of the BlackBerry solution in 1999. Today, BlackBerry products and services are used by millions of customers around the world to stay connected to the people and content that matter most throughout their day. As of the end of February, the company has shipped approximately 145 million smartphones and has a subscriber base of more than 60 million. For fiscal 2011, revenue hit $19.9 billion, up 33% from $15 billion last year. Net income for fiscal 2011 was $3.4 billion or $6.34 per share diluted, up 47% over fiscal 2010.

    For Q4 FY 2010, net earnings at RIMM surged 32% to $934 million, or $1.78 a share, from 710 million or 1.27 a shares one year ago. Revenue rose 36% to $5.56 billion, on strong sales of the company’s BlackBerry line of smartphones. Analysts polled by Thompson Reuters, expected earnings of $1.75 a share on revenue of $5.65 billion.

    RIMM has also announced that for Q1 FY 2012, revenue is expected to be in the range of $5.2-$5.6 billion. Gross margin percentage for the first quarter is expected to be approximately 41.5%. Earnings per share for the first quarter are expected to be in the range of $1.47 -$1.55 per share diluted. For the full year fiscal 2012, the company expects earnings per share to be in excess of $7.50 fully diluted.

    The company’s outlook runs below the average estimate of analysts polled by Thompson Reuters, who expected RIMM to earn $1.65 a share on revenues of $5.67 billion in Q1 FY 2012. The lower-than-expected earnings were due to the company’s plans to increase the research and development expenses in fiscal 2012, as well as spend heavily on the launch of Playbook.

    RIMM has scheduled the launch of Playbook for April 19, a move that should boost the revenue and earnings over the next quarters. The tablet is expected to be cheaper and faster than iPad, with a potential to outperform in the emerging markets. However, the lack of applications that run under the tablet’s platform, as well as the smartphone market share shrinkage in the U.S., raises significant concerns towards the tablet adoption rate.

    However, RIMM has recently reported plans to allow Android applications to run on its tablet computer. The move will greatly expand the number of apps available on the PlayBook. Google Inc.’s (NASDAQ: GOOG) Android platform is becoming increasingly popular in the U.S. According to a recent report from Nielsen, Android is claiming 29% of the U.S. smartphone market for the last quarter of 2010, while Apple and Blackberry tied with 27% each.

    Meanwhile, Strategy Analytics said that tablet sales overall more than doubled to 9.7 million in the fourth quarter of 2010, from 4.4 million in the third quarter. The iPad’s share of those global sales dropped from 96% in the third quarter to 75% in the last quarter. Tablets running on Android, meanwhile, rose from 2.3% to 22%, due to the growth of Galaxy Tab sales.

    Competition in the mobile tablet category is poised to heat up even more, as Dell Inc. (NASDAQ: DELL) and Motorola Mobility Holdings Inc. (NYSE: MMI) have also launched tablets running Android. In addition, Hewlett-Packard Co. (NYSE: HPQ) is also planning a similar device.

    Even with the crowding tablets market, there is enough room for every player to find a niche. The research company Gartner predicted that sales of tablets could grow from 19.5 million in 2010 year to 208 million in 2014. As a result, RIMM has the potential to significantly scale up its revenue with the successful launch of Playbook.

    Despite the solid results and decent outlook, RIMM trades at a trailing twelve months (ttm) P/E multiple of 9.04x, compared to AAPL’s ttm P/E of 19.25x and Google Inc. (NASDAQ: GOOG) ttm P/E of 26.31x. The discount trading is due to increased competition from Apple and Android based phones that are eating away the market share from RIMM. However the rapidly growing smarphone and tablets market offer RIMM decent chances to build a solid niche and appreciate on solid growth.

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