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So much for the fall of Research In Motion (RIMM, news, msgs).
The BlackBerry maker was left for dead by many investors who worried about increased competition and the distraction of a prolonged lawsuit. But Research In Motion (RIM) handily topped fiscal first-quarter profit and sales targets after the bell Thursday and the stock rose more than 6% in extended-hours trading.
The company also added 680,000 users during the quarter, exceeding estimates by roughly 5,000. Gross margins of 55.1% were also slightly above estimates and fractionally above year-ago levels. And the company guided current-quarter earnings to between 69 and 75 cents per share, compared to the consensus estimate of 70 cents per share.
For a company that was supposed to be reeling from a barrage of new competition from powerhouses such as Motorola (MOT, news, msgs) and Palm Inc. (PALM, news, msgs), that's a pretty impressive quarter. In fact, management noted in its conference call that the impact of Motorola's new Q phone on sales "wasn't even in the category of noticeable." But it should be noted that Motorola only recently launched the Q phone, and that its target market of consumers is not really RIM's strength.
As for Palm, the company also reported results after Thursday's close. While it managed to post better-than-expected earnings, sales were below consensus estimates. The company also guided fiscal second-quarter earnings and revenues below Street projections. Palm's stock was down more than 9% in after hours trading.
A missed opportunity
Did the competition fail to take out RIM when it had the chance? That's what the Street concluded after seeing both Palm's and RIM's numbers.There is no denying that the rest of the players in the wireless e-mail marketplace failed to seriously wound RIM when they had the chance. Palm never succeeded in stealing significant market share in the enterprise universe, Motorola let its chance slip away due to a series of delays and Nokia (NOK, news, msgs), T-Mobile and the others priced their offerings too high.
But it's still too early to suggest that Research-In-Motion has emerged from its lengthy legal fight stronger than before.
The BlackBerry remains a popular wireless e-mail device, especially for large corporations and government agencies. But the enterprise market is small compared to the consumer, small-business and individual-entrepreneur universe. And RIM is largely unproven in this realm.
Can RIM tap the consumer market?
How the company competes with the likes of the Q phone, Palm's Treo, Nokia's 9500 and T-Mobile's Sidekick could determine if RIM can take the next step from dominating its niche to dominating the overall smart phone market.Though the current array of Blackberry products remain well-liked by businesses that put a high level of importance on security issues, they aren't the most user friendly when it comes to phone performance. They also lack the camera and MP3 functionality that the consumer market demands.
RIMM is increasing its research and development spending with an eye on expansion into the consumer space, but it is well behind the competition. Failure to measurably penetrate this marketplace will doom RIM to being nothing more than a niche player and in the fast-changing commoditized world of technology.
But based on the recent numbers, the company is alive, stronger than expected and ready and willing to do battle. That alone is a victory considering the uncertainties that have surrounded the company for the last few quarters.
Assuming a multiple of 25-times future earnings, a reasonable valuation for a company with RIM's relatively consistent history of earnings and sales growth, the stock has upside to the $75 to $76 area over the next 3 to 6 months. Longer-term, if RIM can meet Wall Street's expectations and make inroads into the consumer market, the stock could revisit the low to mid-$90s.
At the time of publication, Robert Walberg did not own or control shares of companies mentioned in this column.
Robert Walberg is a financial writer based in Chicago, Ill. He was formerly chief equity analyst at Briefing.com. He is a regular guest on CNN's Moneyline and CNBC's Squawk Box. Mr. Walberg ran for Congress in Illinois in 1994.
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