Does RIM Really Deserve This Drop?

It was a black day for Research In Motion (Nasdaq: RIMM  ) when the company reported earnings in late September. Following the earnings report, the smartphone manufacturer's stock price shed 17%, and the share-price pounding hasn't stopped. Research In Motion's (RIM) stock continued to slide in the following weeks and has now lost nearly one-third of its pre-earnings value. It has definitely been a beating, but seriously, nearly a third of its value lost? Was the news that bad? Is the BlackBerry maker doing that poorly against Apple (Nasdaq: AAPL  ) in the war for wireless fruits?

Smartphone wars
Not likely. The more realistic scenario is that BlackBerry and the iPhone will continue to absorb market share from their relatively small starting positions. Most notably, Nokia (NYSE: NOK  ) is still suffering a headache from the drubbing that the BlackBerry and the iPhone gave it last year.

The most recent data show both companies continuing to rapidly gain market share; research firm Gartner reports the BlackBerry controls 19% of global smartphone market share, up from under 10% in 2007. Likewise, the iPhone has gone from 3% in 2007 to 13% today. Meanwhile, Nokia fell from 49% to 45%. The best part for RIM and Apple is the outsized profits they're generating on their sales. While phone makers like Motorola (NYSE: MOT  ) , Sony Ericsson, LG, and Samsung have a higher percentage of total cell-phone sales, their phones carry very low margins and generate little profit.

Meanwhile RIM and Apple keep developing new technologies to further their growth and maintain superior pricing power on their phones. Compare this to companies like Palm (Nasdaq: PALM  ) , which had to take hiatus from smartphone sales to come up with its next big idea. Or companies like Motorola, Sony Ericsson, and Samsung, which have had to retrench and adopt Google's (Nasdaq: GOOG  ) Android operating system to stay relevant. While these companies flounder, RIM and Apple keep marching along, strengthening their platforms and minting money.

The iPhone has the applications -- more than 2 billion applications have been downloaded from the App store -- BlackBerry has strong services for business purposes with the BlackBerry Enterprise Server and Personal Information Management. Using these core strengths, I expect these two companies to beat down the competition relentlessly.

Foolish bottom line
RIM's real strengths lay in its ever-increasing, loyal installed subscriber base of more than 32 million people. Furthermore, its international reach is rapidly expanding with new launches taking place in Serbia, Cambodia, Singapore, and Thailand. RIM has plenty of room to run with only 19% market share and a cash-generating, debt-free business to fund it. No doubt, Apple will be a worthy competitor, but RIM even has edges here. RIM has staked its claim among business users, while Apple plays more to the younger, less professional crowd. Moreover, RIM distributes through major American carriers like Verizon, Sprint, T-Mobile, and AT&T (NYSE: T  ) , while Apple has constrained itself to just AT&T.

It might look like the underdog right now, but don't count RIM out yet. I'm picking it to grow solidly for the foreseeable future. Oh ... and a note to James Balsillie: There is room for two smartphone companies, but two hockey teams in Ontario is one too many -- let's not bring in a third, eh?

Jeff Lovett owns shares of Research In Motion. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor pick. Nokia and Sprint Nextel are Motley Fool Inside Value selections. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 05, 2009, at 2:01 PM, Fool wrote:

    insightful.

    a profitable choice

  • Report this Comment On November 05, 2009, at 3:57 PM, haugiec wrote:

    So which is it? RIMM is the Scariest stock or As in "Does RIMM Deserve This Drop" seems very contradicting to me.

  • Report this Comment On November 05, 2009, at 4:10 PM, BadCopNoDonuts wrote:

    Definitely scary as far as volatility, but they will hold their market share quite nicely. Just like the article said, the Blackberry is targeted at business users, and those people like the reliability and the design. Also, it will likely be the most popular Verizon smart phone for a while. I'm shorting them since they are going down, but I'm also buying shares as they go down. Win-win.

  • Report this Comment On November 06, 2009, at 3:30 PM, Forkitover wrote:

    RIMM is located in Waterloo, Canada. I'm talking about White Christian North America. They know how to run a business. No need to worry.

  • Report this Comment On November 07, 2009, at 3:02 PM, kennyboy81 wrote:

    InfoThatHelp.

    Have you ever owned a Blackberry? There's a reason they're called crackberrys.

  • Report this Comment On April 20, 2013, at 2:47 AM, camko wrote:

    I think RIM and Blackberry have opportunity in Cambodia, http://tonlegroup.com/our-portfolio/media-communication.html but there is not marketing in the Country.... most of the mobile being used here is Nokia.

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