Investors Divided On RIM’s Consumer Push

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Investors Divided On RIM’s Consumer Push

Is RIM’s push into the consumer space coming at too high a cost? The BlackBerry maker has been aggressively courting consumers, reaching out to them with TV ads, developing new software, and rolling out more consumer-friendly devices, such as the touch-screen Storm. At CTIA, its expected to unveil a variety of consumer-oriented offerings, including a full-length TV service.

Despite an increase in its share of the smartphone market—up to 19.5 percent in the last three months of 2008, from 10.9 percent a year earlier—these efforts, notes the WSJ.com, have taken a toll on RIM’s gross profit margins, which have shrunk to 40 percent, down from 50 percent in the last six months. They’ve also helped knock RIM’s share price down a third from its July 2008 high of $147 per share.

In an investor call last fall, Co-Chief Executive Jim Balsillie called RIM’s strategy a “land grab” and that the company was looking for long-term gain with it. He said of their consumer push, “So we could have a sweeter margin for a couple of quarters and we might not torque the growth quite as much and then we will rue that for the next 20 years, that we gave up the key land for a little bit of interim gratification.”

But investors remain divided on how RIM’s consumer drive will pan out and are looking at its next earnings report out this week for signs that margin erosion has stabilized. Munder Capital Management portfolio manager Ken Smith, whose firm holds 111,000 RIM (NSDQ: RIMM) shares, said despite the pressure on margins, he thinks RIM is still a “long-time winner.”

FirstHand Capital Management Kevin Landis, however, thinks otherwise, noting that it has “been a great success story in terms of getting a feverish niche to adopt it, but that’s a different success story to Apple’s, which has been a game changer.” DeutscheBank analyst Brian Modoff, which has had a sell rating on the shares since September doesn’t believe RIM can pull it off either. “They have to keep running to keep up with changes in consumer tastes and risk missing numbers if their products do not hit,” he said. In February, RIM warned investors that fourth quarter earnings and gross margins were expected to be in the “low end” of its previous forecasts.

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Dianne See Morrison Mar 30, 2009 8:30 AM ET

Posted In: Companies, RIM

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James

I fully agree with Kevin Landis and Brian Madoff. I worked at RIM in Waterloo for about 10 months. RIM in my experience did not operate according to some plan, whether short term or long term, RIM's organizational culture is still that of a small company, rather reactionary, chaotic and unorganized. Therefore it is hard for me to believe in RIM engaging in strategic 'land grab', perhaps more like the Mongol Horde approach. I believe RIM had outspent itself into extremely heavy long term liabilities addressing only Apple as a threat. The campaigns were excessively costly and the strategic returns are only marginal in my opinion. I believe RIM is out of gas for any frontal assaults from giants like Nokia, Samsung, HTC and a host of hungry onlookers. RIM's significant loss in corporate clientele who continue to suffer in the downturn will drag on the very expensive expenditures of hosting the RIM global network (shadow network) which rely on the no longer lucrative corporate clientele. Nokia, Motorola, Samsung etc have done an admirable job in closing the back doors for RIM from fleeing to the mid to low price ranges customers. RIM is trapped. I fail to see RIM not going into demise in the coming quarters as the economies continue to struggle.