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RIMM AT A GLANCE

P/E ► 18.9 AVG EV/EBITDA ► 11.3 AVG ROA ► 25.2% VERY HIGH ROE ► 34.1% AVG Debt to Equity ► 0.320 LOW Current Ratio ► 2.41 AVG

 

 

 

 

 

 

Research In Motion Limited (NASDAQ:RIMM) is a leading designer, manufacturer, and marketer of wireless smart phone and related services. RIM is most famous for its popular BlackBerry smart phone, which has become a common choice for corporate customers around the world. Founded in 1984, RIM is rather unique among its peers in that it produces the BlackBerry handsets, develops the operating system for these handsets, and provides its own network services. Most other companies specialize in just one segment of the wireless market, whereas RIM integrates several aspects into one business.

This approach has had laudable success thus far, propelling RIM to the forefront of the smart phone market. While the majority of RIM's revenues come from sales to corporate customers, the company has begun expanding into the consumer market with the recent successful launches of the BlackBerry Curve and BlackBerry Pearl devices. Additionally, RIM's sales growth has been coming primarily from emerging markets, and the company is working to further expand into these potentially high-growth markets. Total revenue growth in Q1 2009 was 107% and 116% in net income y-o-y.^[1] The number of BlackBerry devices sold also increased by 123.4%, showing the increasing popularity of RIMM's product offerings.^[1]

But given the wide availability of the Blackberry, it isn't all smooth sailing for RIM. Smart phones have become increasingly more popular, accounting for a larger percentage of the overall market for wireless phones. As a result, competition among smart phone manufacturers has grown fierce, and the launch of Apple's iPhone and Palm's Pre caused concern throughout the industry. Free products offering the push e-mail service that put RIM on the map have been popping up across the Internet, giving non-BlackBerry users instantaneous e-mail syncing similar to that offered by RIM. RIM has released its newest update called the BlackBerry Bold. It uses 3G technology, features numerous multimedia features, and will be serviced by AT&T. The Bold was designed to combat the iPhone by becoming more consumer friendly, however, the corporate customer is still the main focus. Also, changing wireless technologies are pressuring manufacturers and carriers to choose sides in the showdown between wireless standards. A bet in the wrong direction would be very detrimental for RIM.

BlackBerry Curve (AT&T)

Business Overview

RIM's revenue and profit, 2008

Founded and headquartered in Ontario, Canada, Research in Motion (RIMM) is a leading manufacturer of wireless devices, particularly smart phone. Though RIM is most known for its popular BlackBerry smart phone , the company offers a number of other products and services geared toward wireless data access. Originally, the company rose to fame for offering enterprise customers access to their corporate e-mail using their BlackBerry devices, eliminating the need for a separate, wireless-only e-mail account. This provided customers with greater mobility, allowing them to roam all around without having to use multiple e-mail addresses throughout the course of the day. Additionally, the BlackBerry system actively "pushes" e-mail to the device. Many e-mail accounts require that the user log in to see if any new messages have been received. With "push e-mail", e-mail accounts are constantly monitored for activity; when a new message is received, it's forwarded through the BlackBerry system and to the user's device instantaneously. Though these original features were aimed primarily at corporate customers, RIM has since expanded its offerings to include the consumer market as well with its release of the Blackberry "Pearl" and Blackberry "Curve."

Devices

RIM's revenue by segment, FY2005-FY2007

RIM primarily manufactures smart phones, or devices that combine the functions of a personal digital assistant (PDA) with those of regular mobile phones. RIM is most famous for its BlackBerry wireless device, which has become one of the most popular smart phones for corporate customers. While the vast majority of RIM's revenues come from sales of its enterprise communications devices, the company has started expanding into the consumer market with the successful launches of the BlackBerry Curve and BlackBerry Pearl. Its newest BlackBerry is the Bold, which continues on this trend towards appeasing the consumer market. It has also been announced that RIMM will launch the BlackBerry Thunder in Q3 2008. The Thunder will be a touch screen and is a direct response to Apple's iPhone.

Services

RIM operates its own infrastructure that provides wireless data and e-mail access to its customers. RIM charges wireless providers a monthly infrastructure access fee, and the carrier then bills individual customers for the service. Though RIM's wireless data infrastructure is primarily used by BlackBerry devices, RIM does license its technology to other cell phone manufacturers. This allows other, non-BlackBerry devices to send and receive data using the same network technology. These BlackBerry Connect and BlackBerry Built-In services are available on a variety of smart phones, allowing RIM to earn revenue from customers who don't even own a BlackBerry.

Software

RIM's BlackBerry smart phones include a proprietary operating system, the BlackBerry OS. The company also offers a variety of other programs designed to utilize the BlackBerry's hardware features. These programs include a personal information manager (PIM) that manages contacts, appointments, and memos, a GPS positioning and navigation program, games, and mobile Internet programs. For its enterprise customers, RIM also sells software for both corporate servers and desktop personal computers. These types of programs allow businesses to provide employees with access to corporate e-mail, Intranet, etc., via their BlackBerry devices. This is particularly useful for companies with employees who travel frequently but still need to remain reachable via e-mail.

Other

RIM also sells accessories, technical support services, and a variety of repair and maintenance programs. Though revenues in this segment have been growing steadily, they have been accounting for a smaller and smaller percentage of RIM's total sales. This is mostly due to even faster growth in the sales of BlackBerry devices and related services.

Fourth Quarter Financials

Revenue for the fourth quarter of fiscal 2009 was $3.46 billion, up 24.5% from $2.78 billion in the previous quarter and up 84% from $1.88 billion in the same quarter of last year. The revenue breakdown for the quarter was approximately 83% for devices, 12% for service, 2% for software and 3% for other revenue. Revenue for the fiscal year ended February 28, 2009 was $11.07 billion, up 84% from $6.01 billion last year. RIM shipped approximately 7.8 million devices in the fourth quarter and approximately 26 million devices during fiscal 2009.

Approximately 3.9 million net new BlackBerry® subscriber accounts were added in the quarter. At the end of the quarter, the total BlackBerry subscriber account base was approximately 25 million.^[2]

International Expansion

Canada

RIM's revenue by region, FY2005-FY2007

Canada, RIM's home country, has been accounting for a steadily decreasing percentage of the company's revenues for the past few years. In fiscal years 2005, 2006, and 2007, Canada accounted for 9.2%, 8.6%, and 7.3% of RIM's revenues, respectively. The number of BlackBerry users in Canada is still growing, but at a much slower rate than in other geographic regions. The reason for this is that isn't nearly as much room for growth in Canada; the country already leads even the U.S. in penetration of BlackBerry devices.

U.S.

The U.S. is the single largest of RIM's markets, accounting for over half of total sales. As with Canada, however, the U.S.'s share of RIM's revenue has been decreasing steadily over the past three years. In FY2005, 67.7% of RIM's sales came from the U.S., whereas the U.S. accounted for only 57.9% of FY2007 sales. The actual number of BlackBerry users in the U.S. has increased significantly, but other markets have nonetheless outpaced it in terms of growth.

Other

New, emerging markets are responsible for much of RIM's recent sales growth. The percentage of RIM's revenues coming from countries other than Canada and the U.S. has grown from less than one fourth of sales in FY2005 to over one third in FY2007. Whereas the BlackBerry has already achieved significant market penetration in RIM's two primary markets, its smaller presence in other markets leaves much room for growth. Several of these markets have been experiencing periods of rapid growth themselves, spurring an increase in the demand for high-end PDAs and mobile phones. For example, RIM recently entered into a partnership with China Mobile to sell its popular BlackBerry Smart phone in China. About 10,000 BlackBerry 8700 model smart phones are set to be distributed though Alcatel-Lucent, BlackBerry's distributor in China, to China Mobile customers in late December 2007.

In the first quarter of 2008, Russian mobile firms MTS and Vimpelcom will also be selling Blackberry phones and servicing corporate clients. The permission to sell Blackberry was granted for one year by Russian state security services. Combined, the two firms are expected to ship about 2,000 Blackberry phones.

Wireless technologies

New wireless technologies are always being developed, which is generally a good thing. Data transfer speeds have increased significantly over the past few years, as the wireless industry has begun moving from second generation (2G) mobile technology to third generation (3G). As with any large-scale advance in technology, however, there are several competing wireless standards all vying to become the new industry standard. Due to the data-intensive nature of BlackBerry service, Research in Motion has an interest in the outcome of the battle of the wireless standards. If RIM places its bets on the wrong standard and produces handsets specifically for that type of network, the results for the company would be detrimental.

Hedging bets with 3G

3G, a group of wireless technologies that offers much faster data service and higher capacity than previous 2G technologies, has become the standard for wireless data service. RIM's BlackBerry devices currently utilize either 3G or "2.5G", which are faster than 2G but not as fast as other 3G standards. RIM uses a variety of carriers, including AT&T (T), Vodafone AirTouch Public Limited Company (VOD), Deutsche Telekom AG (DT), Sprint Nextel (S), and Verizon Communications (VZ), which themselves use various wireless standards in their networks. As such, RIM's real problem with 3G isn't incompatibility; it's taken care to dabble in more than one 3G technology, hedging its bets somewhat. Rather, the fact that regular handsets will soon be able to send and receive wireless data as quickly as a BlackBerry device could pose something of a risk to RIM. While this is true, the BlackBerry's design, hardware configuration, and software set it apart from regular mobile handsets and make it more useful for the demographic it targets, the mobile professional.

4G: impending technology split

Though the transition from second to third generation wireless technologies has yet to be completed, developers are already working on the next step, 4G. One of the leading standards paving the way for the development and implementation of 4G technology is WiMax. This technology competes with both of the two major 3G systems, CDMA2000 (EV-DO) and UMTS (W-CDMA), offering speeds upwards of five times as fast as either of the two. In the U.S., all but one of the major carriers of BlackBerry devices support the development of W-CDMA as the next industry standard. Only Sprint strongly supports WiMax, recently making a significant $3 billion investment in the technology. WiMax and W-CDMA networks are incompatible with one another, which could impact RIM. At some point, RIM will have to decide which technology to utilize in its devices; a bet in the wrong direction would be costly and risky.

Target market: consumer, enterprise?

The enterprise market has long formed the backbone of RIM's business, with corporate customers purchasing the vast majority of the BlackBerry devices and services sold. As a result, the consumer market has remained relatively untouched by RIM, a fact that the company has realized. With the releases of its Pearl and Curve devices, both of which are clearly aimed at more than just enterprise customers, RIM has attempted to break into the consumer segment. The reason for this is that the technology powering RIM's data offerings has improved dramatically over the years, resulting in a much more efficient operation than was possible before. This, in turn, has enabled both handset manufacturers and wireless carriers to lower costs, making the BlackBerry more affordable to the average consumer. To make the BlackBerry more appealing to consumers, RIM has begun releasing devices that do more than just offer wireless e-mail, including such features as a media player, camera, and an overall sleeker design. Consumers have responded, enthusiastically snapping up these new BlackBerry devices. While it's difficult to break down exactly where RIM's recent growth spurt came from, it is safe to say that its rather determined foray into the consumer market is responsible for at least some of it. Considering RIM's firm lead in the enterprise market, it seems logical that the next significant avenue for continued growth would be the consumer segment. Its largest competition in the consumer market has been coming from Apple's iPhone. One way in which RIMM has been trying to be more competitive with Apple is with its offering of applications. RIMM's App World has doubled its options to around 2,000 applications which is still far behind the 50,000 that Apple has. As of July 2009, these applications are available in the U.S., U.K., Canada, Italy, France, Germany, and Spain and soon to be offered in Brazil and India.^[3]

Competition

Research in Motion competes in several different areas of the wireless industry; it manufactures handsets, produces software such as its BlackBerry operating system, and offers its own services and infrastructure. This sets RIM apart from most of its competitors, who generally operate in just one or two segments of the overall wireless industry. Though RIM offers several distinct products and services, it still targets a very specific segment of the wireless market. smart phones, like RIM's BlackBerry, are quite different from basic mobile phones and are aimed primarily at the enterprise and higher-end consumer markets. The competitor most similar to RIM is Nokia (NOK), which both makes smart phones and related software. These products make up a small percentage of Nokia's total sales, however, whereas RIM is almost exclusively dedicated to its Smart phone business. As such, RIM is much more leveraged than Nokia to its success in the Smart phone market.

Note: RIM, NOK, and PALM report earnings on separate calendars. RIM uses a fiscal year ending in March, NOK uses the calendar year, and PALM's fiscal year ends on May 31. Additionally, NOK reports earnings in euros. The above chart was created using annual figures for CY2007 and, in NOK's case, converting to USD.

Devices

RIM is a dominant force in the enterprise market, especially in the U.S. For enterprise customers, Palm (PALM) is RIM's leading competitor, with other handset manufacturers trailing by wide margins. The consumer market is more fragmented, though RIM's BlackBerry is among the top smartphones in the consumer market. The introduction of Apple's feature-laden iPhone has caused something of a stir in the smartphone industry, with many fearing that smartphone manufacturers would lose substantial market share to Apple. Consumer and corporate surveys, however, reported that RIM's BlackBerry seemed relatively safe from the iPhone's competition. According to these surveys, other smartphone manufacturers were more likely to be harmed by the iPhone's release.^[4] As the Wall Street Journal chart below shows, Apple and RIM have used their dominance in the smartphone market to become major players in the overall handset market, stealing an outsized share of the industry's profits. In a survey by Tickermine Researches, the BlackBerry was identified as the overall best selling phone by 7 of the 24 stores polled, and the BlackBerry was also said to be the best email phone by 57% of respondents.^[5]

^[6]

• Apple (AAPL) - iPhone
• Palm (PALM) - Treo smartphones
• Motorola (MOT) - Q smartphone
• Nokia (NOK) - e-series smartphones
• Sony-Ericsson - M and P series high- and mid-range smartphones
• Hewlett-Packard Company (HPQ) - iPaq PDAs and smartphones
• High Tech Computer Corp (TPE:2498) - various PDAs and smartphones, both sold under its own brand and licensed to carriers for private label devices

^[7]

Mobile OS and Platforms

• Microsoft (MSFT) produces Windows Mobile, a version of its operating system designed for use with smartphones and other handheld devices.
• Access Co., Ltd. (TYO:4813) acquired PalmSource, the owner of the Palm OS, in September 2005. Its OS is used in a range of smartphones, most notably the Palm line of Treo devices.
• Symbian Ltd. is a software development company that produces Symbian OS, a smartphone operating system. Symbian Ltd. is owned by a consortium of wireless and electronic companies, including:
  • Nokia (NOK) - 47.9%
  • LM Ericsson Telephone Company (ERIC) - 15.6%
  • Sony-Ericsson - 13.1%
  • Matsushita Electric Industrial Company (MC) (Panasonic) - 10.5%
  • Siemens AG (SI) - 8.4%
  • Samsung - 4.5%
• Apple's iPhone uses a mobile version of the company's OS X.
• Nokia (NOK) produces S60, a platform for mobile phones that uses the Symbian OS, which it both uses in its smartphones and licenses to other manufacturers.

Services

• Motorola (MOT) purchased Good Technology, a company that produces push e-mail software and services, in November of 2006.
• Visto, Consilient, and Seven are three privately-held companies that also offer products and services for push e-mail.
• Yahoo! (YHOO) offers a free push e-mail service for mobile devices.

References

1. ↑ ^{1.0 1.1} You must specify title = and url = when using {{cite web}}. (March 31, 2009).
2. ↑ Research In Motion Reports Fourth Quarter and Year-End Results for Fiscal 2009 - April 2, 2009
3. ↑ Hugo Miller and Crayton Harrison (July 6, 2009). RIM Doubles Applications to 2,000, Taking on Apple. Bloomberg.
4. ↑ http://ce.seekingalpha.com/article/40264
5. ↑ Raw Data Report: Cell Phones
6. ↑ Sara Silver (July 20, 2009). Apple, RIM Outsmart Phone Market. Wall Street Journal.
7. ↑ A new apple of Apple's eye