Since BlackBerry maker Research In Motion (RIMM) announced a Q3 miss last week, many analysts have taken a red pen to their models, assuming that growth will slow as the company struggles with reduced consumer and enterprise spending, lower margins, and competition from the likes of iPhone maker Apple (AAPL).
The latest: AmTech’s Rob Sanderson, who notes today that RIM is facing numerous short-term challenges, which will result in slower growth and lower margins. But Sanderson is still a RIMM bull long-term, and slams his “buy” button again today.
RIM’s challenges, as Sanderson outlines:
- A “massive” product transition — new devices like the Bold and Storm — and expanding its European business.
- A shift in pricing strategy to gain market share, which is affecting margins.
- Competition, especially from Apple. Google is also “one to watch.”
- Macro concerns, like job losses, handset industry forecasts, etc.
- (He doesn’t say anything about mixed reviews for the Storm, RIM’s touchscreen BlackBerry, which many reviewers have trashed.)
So, Sanderson thinks RIM’s FY10 EPS will come in at $4.35, versus his previous estimate of $5.75, and that it’ll grow its subscriber base by 14.9 million next fiscal year, down 4.6 million from his previous guess.
Margins are also getting whacked: He thinks RIM’s handset gross margins will be 35.8% next quarter and 35.9% next year, from his previous estimates of 37.7% for next quarter and 37.3% for next year. (“This compares to AAPL and NOK, which have high-end smartphone gross margins in the 45-50% range.”)
So, why buy RIMM?
- While the overall mobile industry slows, smartphone sales will still grow.
- Carriers are focusing on upselling their high-end phones during downturn. Lots of Razr owners to convert to BlackBerry owners.
- So, RIM should grow its market share. AmTech estimates it’ll take 3% of the market next year, up from 2%.
- This is a platform play, so RIM’s lower pricing strategy (in theory) should pay off long-term.
- RIM is the only pure-play smartphone company.
- Sentiment “is about as bad as can be.” RIMM “is trading at 11x the pre-announced pro-forma EPS run-rate (12x GAAP) and 9x our new forecast.”
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