Analysts question RIM's staying power

 

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By Reuters

Posted on 21 Dec 2009 at 09:14

RIM's recent quarterly results have appeased shareholders, but analysts are still worried about the company's prospects.

The company shipped a record-breaking 10.1 million phones in the third quarter and expects to ship between 10.6 and 11.2 million phones in the current quarter.

The results rocketed RIM's revenue to $3.92 billion, but analysts have questioned the company's ability to maintain margins as it battles for market share with Apple's iPhone and Motorola's Droid.

"Handset industry competition is set to increase with both traditional and non-traditional vendors ... (which) may use price as an incentive to drive units," wrote UBS analysts Phillip Huang and Maynard Um.

As RIM pushes into the consumer market, it will likely sell more low-end phones, squeezing the average selling price

Their concern is that as RIM pushes into the consumer market, it will likely sell more low-end phones, squeezing the average selling price and, in turn, profit margins.

RIM also faces an increasingly tough fight for market share in North America, where Motorola's Droid phone had a meaningful impact for only a few weeks.

Analysts agreed that Palm, which gave a disappointing earnings outlook, faced even greater challenges.

The company has admitted that it's selling fewer Pre and Pixi devices than expected, and while it reaffirmed its fiscal 2010 forecast for revenue of $1.6 billion to $1.8 billion, it plans to spend aggressively on a marketing blitz to achieve that.

"There was not a lot of encouraging news in Palm's guidance," says CL King analyst Lawrence Harris, adding that the results showed the Palm webOS user interface may be less popular than the Android and iPhone browsers.