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Nsd / AP |
] and its Blackberry sales and you come up with pretty simple analysis: Ouch. Now the question is what investors should take away from the RIM news as it relates to iPhone from Apple [AAPL
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] , Palm [PALM
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] , Nokia [NOK
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] , and everyone else operating in the smart phone arena nowadays.
On its face the RIM news looks pretty grim, and it's easy to extrapolate an equally bad news story for Apple. Hence, Apple's sympathy stock decline when RIM's news hit the tape. RIM says it'll come in on the low end of expectations, that profits and margins are getting squeezed.
But the company also says that sales will be at or near the midpoint of the $3.3 billion to $3.5 billion in revenue. And its subscriber growth actually jumped 20 percent ahead of what the company forecast in December.
Profits and margins under pressure despite a far better-than-expected increase in new subscribers sounds to me much more like internal, operational issues for RIM rather than systemic weakness in the smart phone sector. Just because RIM's margins are declining doesn't automatically mean the same thing is happening to Apple, which has proven time and again an alacrity at squeezing pennies here and pennies there to the bottom line where other companies couldn't.
Operationally, RIM has faced an enormous number of challenges that Apple hasn't. RIM continues to suffer from execution issues and marketing missteps. The releases of Bold and Storm were hardly smooth. Again, RIM sales still seem solid, and subscriber growth is on the increase. If the same were true at Apple, I think there's little chance the company would be unable to translate that top line performance into a bottom-line improvement in its iPhone business.
Unless there's some unforeseen increase in commodity component pricing that no one was counting on, and then that indeed would be a problem for the entire sector. But there has been no indication, in an economic climate like this one, that memory or glass pricing has been on the increase.
RBC wireless analyst Mike Abramsky tells me this morning that this isn't about operational issues at RIM, or even component pricing. It's about product mix at AT&T [T
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] and Verizon [VZ
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] and those Apple investors need to take note. He still maintains his "sell" on Apple shares, the only analyst on the Street with such a bearish Apple outlook.
Pacific Crest's Andy Hargreaves is decidedly more upbeat on Apple and says the RIM news doesn't change his opinion either.
"But it certainly highlights some interesting market dynamics," he says. "From a bottoms up perspective, it really shows the impact that iPhone is having."
He says iPhone has raised the bar for performance while lowering the bar for price, which is a kind of double-whammy for Blackberry.
"First, Apple has become the price setter in the market at $199.
RIM (or anyone else for that matter) can't sell phones in meaningful volume above the $199 price point, which prevents them from capturing excess margin. Second, iPhone has significantly increased expectations for functionality...Combined, the lower price power and higher component requirement has negative margin implications that we are seeing."
RIM right now is getting crushed. And Apple is down 2 or 3 percent because of it. And if iPhone was Apple's only business, and we could establish RIM's issues were because of some sector weakness affecting everyone playing in it, then sure, Apple's sympathy slide would make sense.
But the fact remains — as it always has — that Apple, at least today, is far more than merely an iPhone story, and we got a clear indication of that from its holiday shopping sales: Apple is Mac. Apple is iPod. And Apple is iPhone, too.
Bottomline: RIM subscriptions are way up and Piper Jaffray tells me this morning that's good for the entire smart phone sector, margin squeeze for RIM or not.
As far as RIM vs. Apple? Weakness at one-trick-pony RIM should not automatically mean weakness at Apple. Simple.
Questions? Comments?
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