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Wednesday, February 11, 2009

Research In Motion (RIMM) updates outlook

RIMM says subscriber additions will be 20% better and that gross margins will be at the low end of forecasts.  They predict a return to a more normalized subscriber addition rate (much slower!) for the following quarter as the holiday surge is not sustainable.

The Skew: This contradicts some intra-quarter buzz that gross margins were trending better.  It also confirms that the Storm and Bold, the strongest part of the product portfolio, are more expensive to produce.  RIMM has a series of 3G upgrades to the line scheduled for this year.  As new products come online, expect margins to continue to see pressure until volumes become significant.
   Blackberry street pricing has become much more competitive, with handsets being offered in the $19 – 99 range.  Historically, carriers have subsidized handsets in order to grow subscriber counts.   Smartphones, because of their data plan needs, tend to carry higher ARPU for subscribers.  It would follow that carriers would be eating the lower handset pricing in order to recapture larger ongoing subscriber fees.  RIMM’s gross margin issues suggest they are bearing some of the cost of the more aggressive pricing, which is a change if so.
   While the company’s prospects are certainly better than almost any other handset manufacturer, the long-term chart still suggests a much lower stock price in the future.

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