Thursday, June 26, 2008

Research in Motion (NASDAQ:RIMM): Colour on quarter

I wanted to highlight couple of broker comments on Research in Motion (NASDAQ:RIMM) following results out last night:

- RBC Capital notes that on product momentum (Curve, Bold) offsetting seasonality, Q2 guidance for $2.55-2.65B (86-93% Y/Y) was $100-150M above street. However, Q2 EPS guidance ($0.84-0.89) missed street ($0.90) on higher than expected investments (op ex up 26-28% Q/Q), RIM's first guidance miss after beating street EPS for 5 qtrs. GM guidance was 50.5%, slightly below RBC at 51%.

With the Smartphone market at inflection point and the company best positioned in history, RIM (at the cost of interim margins) is materially increasing investment (S&M, R&D) to achieve dominant global handset status. RIM expects its 'strongest back half in history', affirming firm's expectations for a broad consumer assault 2H08, including new handsets (Touchscreen, Flip, Slider, 3G Pearl, others). Notes historically (e.g. 2005, 2007) RIM made similar investments to address larger opportunities, which subsequently paid off handsomely for investors.

If management executes its strategy successfully and expands its addressable market, they expect rising investor sentiment as investors look past interim margin pressure and recalibrate around RIM's full market opportunity. Maintains Outperform & $165 tgt.

- Goldman Sachs is lowering their FY09/10/11 EPS estimates to $3.62/$5.11/$5.86 from
$3.85/$5.29/$5.95, and 12-month price target to $156 from $163, but maintain a Buy rating on the stock. While the firm is comfortable adding to positions with the guide-down out of the way (consistent with preview), they prefer to wait before becoming more aggressive until they gain comfort that 1) market expectations are more realistic, and 2) the company is executing well toward its August-September product launches.

Goldman now thinks RIM's EPS growth will be based on higher sales and lower margins relative to their prior expectations, as the company takes aggressive actions to respond to the iPhone's lower price points and Nokia's move of the Symbian OS to an open-source, royalty-free model.

Notablecalls: RBC Capital's Mike Abramsky sure hit the bullseye with his RIMM comments yesterday. I have no real feel for the stock here around $130. On one hand, it's still one of the few high growth tech plays but with GSCO comments regarding lower margins (due to competition), I'm not entirely sure its a bounce play here. Could go either way.


Win said...

Thanks, NC, for the service you provide. Please keep doing it. It's very helpful to us retail traders.

I think RIMM will trend down or even, even when the market bounces Friday-Monday. 110-115 would be a nice buy point, within a week or so.

The HardHead Fund said...

NC is a blessing indeed...

I would tend to think Apple would bounce more than RIMM with the release of the 3G iPhone in a few weeks. Apple was down ~$9 and I believe was one of the major reasons RIMM didn't beat expectations. RIMM is indeed GREAT but Apple has more room to grow... provided the new iPhone is a hit. My $$$ is in my mouth :) Good luck to all - except da godfather GOLDMAN!