RIM faces uncertain future, shares eroding fast
By Ian Karleff
TORONTO, Aug 3 (Reuters) - Shares of Research In Motion
<RIMM.O><RIM.TO> fell 8 percent on Friday for a 23 percent loss
in the past month as investors fret about the pager-maker's
ability to meet second-quarter revenue targets as it becomes
more reliant on network carriers for growth.
Resellers of RIM's popular BlackBerry pager, a personal
organizer which also receives redirected desktop e-mail, have
revealed slumping BlackBerry sales figures and growing
inventories in recent quarterly reports.
Aether Systems <AETH.O>, for example, said this week it has
as many as 85,000 RIM devices in inventory, mimicking the
situation at other resellers and leading analysts to think
Aether won't order more devices this year.
Analysts polled by Thomson Financial/First Call expect
RIM's sales for the second quarter ended Aug. 31 to be around
$83 million, with earnings of 4 cents per share. But analysts
are growing skeptical that these numbers are possible.
Mark Hugh Sam at Dundee Securities said in a recent report
that sales could dip below $80 million in the second quarter.
"Although RIM may have an average second quarter due to the
current slowdown in IT spending...we expect it will sign a few,
if not several carrier contracts in Europe and maybe some in
Asia Pacific within 6 to 9 months," he wrote.
Shares of RIM shed about 8 percent on Friday, falling
C$3.22 to C$38.18 in midday trading on the Toronto Stock
Exchange. The stock's 23 percent fall in the past month
compares to the Nasdaq composite index, which fell 1.5 percent
on Friday and is only off 4 percent since July 3.
Analyst said RIM is on the cusp of a pivotal launch of its
product with Britain's BT Cellnet.
If that succeeds it could make the company more reliant on
network carriers for growth, and analysts said that could raise
RIM's near-term risk profile.
Scott Miller at C.E Unterburg Towbin said preliminary
checks show RIM on track to meet quarterly sales targets. But
the "real issue" at the moment is whether RIM can move to a
more carrier-focused sales model.
"Long term this is very positive for the company but in the
near term it increases the chance of execution risk. If this
transition doesn't go very smoothly and RIM doesn't execute
flawlessly the numbers near term are at risk," said Miller.
RIM'S FUTURE IS A SOFTWARE COMPANY?
Hugh Sam said that as companies like BT Cellnet start to
sell RIM's devices on high-speed mobile networks, RIM's
competitive edge will start to erode and it will have to decide
whether to become a software company or a device manufacturer.
He said the secret to RIM's success is its software,
located in the device, on a corporate server where e-mail is
redirected, and in RIM's network operating center.
Hugh Sam said software sales, which should comprise some
$600 million of an estimated $1.5 billion in year 2005 sales,
would bring in the lion's share of RIM's profits over the next
four years.
Network carriers now pay RIM up to $10 a month per
subscriber for software on RIM's network operating center.
"One of the reasons that RIM currently has no competition
and a 6-9 month lead over any potential competitor is because
there are only a few companies in the world who understand how
to write software for all three components," wrote Hugh Sam.
"We believe RIM is at a crossroads to preserve its long
term future, RIM must decide to be either a device manufacturer
or a software company, and decide quickly," he added.
As a device maker, RIM is likely to face similar hurdles to
Palm Inc <PALM.O> and Handspring <HAND.O>, both of which have
seen profits erode as competition rises. As a software company,
RIM's main competitors will be Microsoft <MSFT.O> and Aether.
Hugh Sam said RIM must become more aggressive in focusing
on the software side of its business, rather than on devices
where "RIM does not have any sustainable competitive advantage
in either being a low cost producer or having a differentiated
product." That may mean acquisitions, he added.
But Miller said it was too early to decide RIM's future
strengths, and the jury is still out on how Microsoft with its
.NET strategy will play on RIM's turf.
"There's a lot of moving parts, so it's a little early to
say RIM is a software company. A lot is going to change over
the next five years," said Miller.
((Ian Karleff, Reuters Toronto Bureau 416-941-8102 e-mail
toronto.newsroom@reuters.com)
REUTERS
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