The quarter, ended May 31, saw Waterloo, Ont.-based RIM announce its new Bold model of the popular smartphone platform, a third-generation, or 3G, iteration which is expected to be available from carriers in July.
In a note released Monday, RBC Capital Markets (TSX: RY)predicted revenues of $2.3B, up 112% year over year and 22% from the previous quarter. That would amount to earnings of 86 cents per share. The bank attributes the growth to RIM’s sustained promotion of its existing Pearl and Curve models and carriers’ replenishing their stocks after robust holiday season sales.
Competition is certain to heat up between RIM and Apple throughout the rest of the year. The first iPhone was released in the U.S. a year ago, but in July, Apple will release a 3G version that will offer increased storage capacity, longer battery life and GPS capabilities. This model will also mark the debut of the iPhone in Canada.
Apple also signed a deal with Microsoft (NASDAQ: MSFT)to enable the iPhone to work with the software giant’s Exchange product and thereby tap into the vast community of business users that use it regularly.
The emergence of the iPhone, however, is “probably the best thing that could have ever happened to RIM,” according to telecom analyst Carmi Levy of AR Communications Inc. in Thornhill, Ont. Its success in the market, he said, is a validation of RIM’s fundamental strategy that users would all be buying smartphones and not basic cell phones.
“The truth of the matter is [the iPhone] is growing the market faster than RIM would have been able to grow it on its own.”
As the iPhone pushes further beyond its consumer base and into the business realm, RIM has managed to extend the BlackBerry in the opposite direction. Q1 saw ample evidence of this, according to Levy.
“They’ve…established a significant beachhead in the consumer space, which is no small feat….They’ve done a masterful job of convincing consumers that they need a BlackBerry.”
The chief challenges for RIM going forward are ones related to markets outside the developed world, according to Levy. It’s in countries such as China, India and those in southeast Asia where the most growth is expected in the smartphone market.
Many citizens there will be making the leap from having no computer at all to possessing an advanced communications device as carriers build out wireless infrastructure. With populations in China and India measured in the billions, these markets figures to be far more lucrative than in the West, where growth rates have flattened, Levy said.
In many of these locations, however, RIM will have to overcome a lack of awareness.
“Every time they go into [a developing market], it’s not like they have been selling cell phones there for years,” Levy said. “They’re starting from scratch and they have to build relationships with the carriers, educate the market that there is a difference between voice and data, and drive the value proposition of a consolidated smartphone device and not just a basic handset.”
Another challenge for RIM has surfaced in India, where authorities have been insisting on gaining access to the firm’s messaging infrastructure in order to monitor messages for potential terrorist activity. The last thing RIM needs is any suggestion that its security is not as rock-solid as it is largely perceived to be.
With a potentially huge market stretched before it, however, RIM must engage in a balancing act of satisfying Indian officials while not compromising its reputation.
“If they simply cave in to the Indian government, that can tarnish the brand across the world,” Levy said.