While Research In Motions fourth-quarter earnings met the firms previous estimates, experts said that the companys lowered first quarter sales outlook may evidence that its prolonged patent suit against NTP helped RIMs rivals boost their own fortunes.
On April 6, RIM reported fourth-quarter 2006 net income of $18.4 million, or 10 cents per share, compared to a loss of $2.57 million, or 1 cent per share, recorded by the firm in the same period last year.
The company said that its sales grew to $561.2 million during the fourth quarter, a 39 percent gain over the same time frame last year.
Cutting out legal costs from the NTP suit, RIM said it would have filed earnings of 65 cents per share for the fourth quarter, which met the firms earlier estimates for the period but fell short of the 67 cents per share earnings projection expected by analysts polled by Thomson Financial.
For its fiscal 2006, RIM reported revenue of $2.07 billion, a 53 percent increase over the $1.35 billion it recorded for 2005.
The firm said that it shipped 1.1 million of its mobile devices during the fourth quarter, for a total of approximately 4.0 million units during 2006.
Despite hitting its earnings for the fourth quarter, RIMs latest projections for its first quarter 2007 fell well short of Wall Street analysts expectations.
RIM said it expects to report sales between $580 million and $610 million for the first quarter, while analysts surveyed by Thomson Financial had been predicting revenues of $625 million for the period.
“With [the NTP suit] behind us, were excited to focus 100 percent on growing our business,” RIM Chairman Jim Balsillie said in a call with investors.
“While there is no doubt that our business lost some momentum during the last few months, everyone at RIM is encouraged and excited by the strength were beginning to see.”
As a result of the patent NTP suit, which RIM eventually agreed to settle for roughly $613 million, Balsillie said that his company also failed to add as many new subscribers as it originally expected during the fourth quarter.
While the executive had once predicted that RIM would add as many as 825,000 new users during the timeframe, the company ended up bringing onboard some 625,000 subscribers.
One the earnings call, Balsillie said that RIMs sales had increased since the NTP settlement was announced on March 3, reporting that RIM is currently adding roughly 50,000 new subscribers per week, compared to the average of 40,000 users per week it was attracting before the settlement.
The disappointing first quarter outlook, combined with the slowed growth of its subscriber base, caused some analysts to question whether or not uncertainty created by the NTP suit encouraged users to look into RIM alternatives.
Effects on RIMs Market
While analysts said that the company was likely the victim of customers waiting for the patent suit to end before making their buying decisions, in light of the fact that the NTP case threatened to shut down RIMs wireless e-mail services, some experts said the legal brouhaha may well have a long-term effect on the companys market leading position.
In a note to investors, analyst Andrew Neff of New York-based Bear Stearns, advised that the investment firm is lowering its stock rating on RIM from “peer perform” to “underperform” based on the companys subscriber growth estimates.
“Despite the cessation of the litigation and absence of effective competition, our concern is that the wireless e-mail market could be saturating at current levels, requiring new products or marketing methods to jump-start growth,” Neff wrote.
While the analyst said that RIM is planning to expand its product lines to go after more consumers, he questioned whether that strategy would significantly buoy the wireless firms growth prospects, as much of its success to this point has been achieved with enterprise business customers. Neff said that the consumer market effort would also drive up RIMs operating costs.
Rivals such as Good Technology, Microsoft and Nokia lag far behind RIM in the mobile e-mail market, said the analyst, but increased competition from those companies and wireless operators, who will look to undercut RIM on pricing, could also make it harder to dominate the sector.
Andrew Lee, analyst with investment firm TD Securities, Toronto, said in similar a report that the entrance of Microsoft into the wireless e-mail market is causing some enterprise customers to hold off on buying RIMs BlackBerry devices, and the industry watcher said he expects that trend to continue.
Other analysts observed that while the uncertainty surrounding the NTP suit may have hurt RIM in the short term, it may still be hard for rivals to steal business away from the segment leader.
Neil Strother, analyst with NPD Group, Port Washington, N.Y., said that RIM might have been smarter to settle the case more quickly, but he doesnt see it damaging the firms prospects significantly.
“They knew that the longer the NTP trial went, it created doubt in the marketplace and could aid rivals, and the wireless e-mail market may have changed somewhat, at least in terms of customers familiarizing themselves with alternatives,” said Strother.
“But the fact remains that theres nothing else on the market that integrates the device and the service as well as RIM BlackBerry, and that alone will continue to win them new sales.”
Strother said that in all likelihood, the market for wireless e-mail will grow at a fast-enough pace in 2006 to allow both RIM and its rivals to increase their subscriber accounts and device sales, but he believes that BlackBerry will remain tops in the sector.
“Down the road there will likely be two or three dominant providers in the mobile e-mail space, but Id expect RIM to be one of those companies and likely the leading top-tier player,” Strother said.