RIM Is Strong, but Should BlackBerry Fear Palm's Pre?

Research in Motion posted strong numbers for the fourth quarter of 2009, found a way to cut costs and hinted toward more diversity in its portfolio, especially when it comes to more consumer-specific handsets. But can the BlackBerry maker stay strong against the soon-to-arrive Palm Pre, as well as competition from Apple, Samsung, HTC, LG and a gearing-up-to-attack Nokia?

Research in Motion saw profits of $3.46 billion for the fourth quarter of fiscal year 2009, the BlackBerry maker's very pleased co-CEO Jim Balsillie announced April 2.

The company's quarter ended Feb. 28, and RIM's revenue shot up from $2.78 billion the previous quarter - which was an impressive 84 percent increase from the $1.88 billion in the fourth quarter of 2008.

Approximately 83 percent of the newly announced revenue came from devices, 12 percent from services, 2 percent from software and another 3 percent from "other revenue."

"RIM experienced an extraordinary year in fiscal 2009, shipping our 50-millionth BlackBerry smartphone and generating $11 billion in revenue," said Balsillie.

RIM's overall revenue for fiscal year 2008 was $6 billion, with gross margins 51.3 percent; in 2009, while revenue rose considerably, gross margins fell to 46.1.

Balsillie says gross margins in the current quarter will be in the 43 to 44 percent range, partly due to a decrease in BlackBerry component costs; while RIM manufacturers many of its devices near its headquarters in Waterloo, Ontario, it's expected to send some of the work to Hon Hai Precision Industry in Taiwan, which also manufactures the iPhone for Apple.

"RIM does a better job than most of managing its production costs, and we think RIM should be able to hold its gross margins broadly around current levels in the near-term," Neil Mawston, a director with Strategy Analytics' Global Wireless Practice, told eWEEK.

"The longer-term threat is that R&D spending may have to go up as RIM's portfolio expands, while its average handset price will inevitably come down as it pushes toward the mid-range mass-market," Mawston added. "If cost-growth outstrips revenue-growth, then RIM's profits will shrink."

During a call with analysts, RIM's Balsillie had noted, "Pricing is a big function of what is at play. [Going forward] you'll see more powerful segmenting and more powerful options."

Mawston says that RIM has indeed been quietly expanding its handset and services portfolios into the consumer market for the past couple of years.

"First, RIM offered more consumer-friendly handset designs with smaller keyboards, such as the Pearl 8110," said Mawston "Second, RIM offered more consumer-friendly services beyond corporate e-mail, such as BlackBerry Media Sync for music. Third, RIM is partnering with operators such as Orange to drive devices like the Pearl down into the mass-market prepaid segment in Europe, Africa and Asia."

In some ways, RIM's plans are mirror opposite of what Apple did with the iPhone.
"RIM has the opposite challenge to Apple," said Mawston. "Apple started in consumer and wants to push into the enterprise. RIM started with the enterprise and wants to push into consumer. Repositioning for both of those brands will take time and resources."

Some of that R&D may be in service of competing against the Palm Pre, due out this June - though some say it's no contest.

Though Mawston says there's more than just the Palm Pre standing between RIM and expanding 2010 revenues.

"RIM is and will be competing on several fronts in the USA in 2010," said Mawston. "The Palm Pre is one major competitive threat, while Apple, Samsung, LG and HTC are others."

That list should also include Nokia, which is quietly preparing to re-attack the U.S. market over the next couple of years.