Why RIM Is Screwed: Limited Market Opportunity, Losing AT&T Share, Margins Getting Worse (RIMM)

Is BlackBerry-maker Research In Motion (RIMM) really one of the most promising growth companies in tech, as some bullish analysts have said? Or is its meteoric growth about to hit a wall?

Credit Suisse analyst Kulbinder Garcha thinks the latter, and says he’s taken a lot of heat for his “underperform” rating and a $100 price target that’s nearly 20% below the $121 it’s trading at today.

But in a note today, Garcha repeats his view that the Street’s EPS estimate for fiscal 2010 — $5.41 per share — is still 18% too high. Why?

  • The smartphone market is growing as fast as he thinks it can. He’s already predicting the market will accelerate to 64% unit growth in 2009 after 37% growth in 2008.
  • RIM’s business with AT&T — 25%-30% of its hardware revenue — is unsustainable. He thinks RIM’s AT&T share — 70% in the June quarter — will drop as AT&T focuses extra attention on Apple’s (AAPL) new iPhone 3G.
  • New business with Verizon won’t make up for lost share at AT&T. With the touchscreen ‘Thunder’ coming this winter, Garcha estimates RIM could get 55% share at Verizon in the December quarter, up from 32% in the March quarter. But that won’t offset share loss at AT&T, he says.
  • As RIM focuses more on consumers — their fastest growing segment — new products are going to put pressure on average sales prices and gross margins. He predicts fiscal 2010 ASPs will decline by 11% and gross margins will fall to 47.6% from 49.7% in fiscal 2009.

See Also:
RIM Getting Beat Up Unfairly, Enough Room For BlackBerry And iPhone, Says RBC
RIM Slapped: Consumer Growth ‘Under Siege’ Because Of Apple iPhone
Apple’s iPhone Enterprise Opportunity “Larger Than Thought,” Goldman Says

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