BlackBerry Investors Pin Hopes On Playbook

Research In Motion Ltd. (RIMM) is expected to report strong earnings growth for its fiscal third quarter Thursday, but many on Wall Street have their eyes trained on the expected debut of the company's first tablet device sometime early next year.

Since the company's most recent earnings report in September, Research In Motion's share price has surged by more than 30%, though it remains below its March peak in the $75 range. Part of that run-up came after the company beat analysts' expectations for the period ended Aug. 28, thanks to strong demand for the company's BlackBerry line of smartphones.

But part of the recent gains can be traced to enthusiasm over the Playbook, a tablet device the company announced in September. The device is not expected to come to the market until sometime in early 2011.

"Overall, we remain constructive on RIM as we believe share prices have yet to fully capture the accretive effect of RIM's entry into the tablet market," Stephen Li of Raymond James wrote in a note to clients Friday. He maintains an outperform rating and $75 price target on the stock.

Several brokers have begun to add predictions for the Playbook into their estimates for next year, when RIM's BlackBerry business may come under even more pressure from devices such as Apple Inc.'s (AAPL) iPhone and Android-based smartphones.

"If executed properly, the PlayBook could help RIM defend its enterprise leadership against intensifying competition from Apple, Android and [Windows Phone 7]," Ittai Kidron of Oppenheimer wrote in a note to clients last month. He maintains a perform, or neutral, rating on the stock.

 
  Strong Results 
 

More pertinent to the near term are RIM's results for the quarter ended Nov. 27.

Wall Street is looking for strong double-digit growth in both earnings and revenue for the period, as sales of new devices such as the BlackBerry Torch as well as older devices in emerging markets are expected to beef up the bottom line.

Specifically, net income is expected to jump by 40% from the year-earlier period to about $877 million, or $1.64 per share, according to consensus estimates from Thomson Reuters.

Revenue is projected to grow by 38% to $5.4 billion.

Analysts also expect RIM to report smartphone unit shipments of 14 million. The company had previously predicted shipments in a range of 13.8 million to 14.4 million for the period.

This will be the final period in which RIM reports metrics for average selling price, or ASP, and net subscriber additions. The company said in its most recent earnings report that those figures were less reflective of the health of its business as it broadens its reach across countries and price points.

Analysts currently expect ASPs to come in around $310 for the quarter, with a little more than 5.1 million net subscriber additions for the period.

 
  Long-Term Concerns 
 

Most expect the BlackBerry Torch at AT&T Inc. (T) to be the quarter's star performer, though RIM does not break out specific results for each device.

AT&T is working to beef up its offerings of other smartphones, as the carrier is widely expected to lose its exclusive access to the popular iPhone, which is expected to go on sale at Verizon Wireless sometime early next year.

That has caused many analysts to worry about RIM's future business at Verizon. RIM's BlackBerry models also compete with phones from Motorola Inc. (MOT), Samsung, HTC and other vendors running on the Android platform designed by Google Inc. (GOOG).

Also, Microsoft Corp. (MSFT) released the first phones for its Windows Phone 7 operating system in early November.

"Over time we expect RIM to cede significant share in North America, a geography that contributes to over half of sales," wrote Ashok Kumar of Rodman & Renshaw in a note to clients Monday.

Mark McKechnie of Gleacher & Co. downgraded RIM to neutral last week on worries that the recent share-price run-up captures the company's near-term potential and fails to reflect some longer-term concerns.

"We see increased competition in 2011 as smartphones move to the midrange, alternative solutions penetrate the enterprise, and RIM's bandwidth efficiency has not yet translated to the consumer," McKechnie wrote.

-By Dan Gallagher; 415-439-6400; [e-mail]