Stock of the Day: RIMM
fnews.yahoo.com
Dec 22, 1999
Research in Motion: Success Begets Competition
Research in Motion (Nasdaq:RIMM - news) is a Waterloo, Ontario company that is gaining serious attention south of the border. RIM's pager-type products provide mobile email access and other wireless two-way communications services. Business is blossoming and the stock has soared since its listing on the Nasdaq in February. Heavyweight competition is on the way, though, causing the stock to retreat in recent weeks.
RIM's product/service lineup includes Blackberry, a wireless email solution that starts with a handheld device containing a small keyboard and display. This device allows access to a nationwide wireless network and integrates with the user's desktop email, calendar and address book programs. The company also makes a RIM 850 wireless handheld and RIM inter@ctive Pager 950, a wireless PC Card for use with laptops and PDA's, and embedded radio modems which it sells to OEMs in the laptop and portable electronics market.
Blackberry and the other products are aimed at mobile professionals and RIM sells the units and the subscription service directly to corporations including prominent Wall Street firms and law firms. Other distribution channels include value-added resellers such as ISPs, and RIM recently signed a major deal with Dell Computer (Nasdaq:DELL - news) . Dell is so strong with corporate buyers that this deal is expected to significantly expand Blackberry's distribution. RIM gets the unit sales to Dell, albeit at a discounted price, but more importantly will provide the wireless service and bill customers directly. The subscription service is a higher-margin, recurring revenue stream that has analysts very excited about RIM's prospects going forward.
After the close on Tuesday, Research in Motion reported its fiscal third quarter results and earnings were right in line with the consensus of US$0.05 per share. Whether that's enough to satisfy investors remains to be seen, but clearly an issue bigger than the past three months is whether RIM's products can sustain their early lead as this wireless communications space becomes more competitive.
Right now Blackberry stands apart from conventional paging and other handheld computing devices with features like instant email automatically forwarded from your desktop to your pager, seamless integration with Microsoft Outlook (email, calendar and address book), enhanced sensitivity to expand the coverage area especially inside buildings, and significant battery life improvements. Rave reviews from users have fueled the fire behind Blackberry sales and subscriber growth.
But competition looms. A few weeks ago Microsoft (Nasdaq:MSFT - news) announced plans to work with Ericsson (Nasdaq:ERICY - news) to develop products that allow cell phone users to link up with their desktop email programs. Don't expect anything for at least a year, though, so RIM has time to extend its market penetration and enhance its product features. Meanwhile 3Com (Nasdaq:COMS - news) has its ubiquitous Palm devices, which don't measure up to the features offered by RIM but may soon through partnerships with Qualcomm (Nasdaq:QCOM - news) and other mobile phone technology firms.
The market for mobile email and other wireless Internet access products is expected to explode in coming years, and since Research in Motion has a hit on its hands with BlackBerry it is considered a leader in this space. Whether it can sustain that lead is obviously the pivotal question for investors, and the stock price is very sensitive to the competition issue. The stock surged to its $63 peak shortly after the Dell deal, and slumped as low as $41.56 following the Microsoft news. This is one of those high-risk/high-reward stocks that is suited only for the most risk-tolerant of investors.
- James Hale
The Online Investor |
