It’s a basic principle of capitalism: Increased competition can hurt a company by putting pricing pressure on products while forcing the company to boost marketing expenditures to sell the product.
But when it comes to Research In Motion (RIM), the picture is a bit more murky. Analysts say the company’s financial figures could be both harmed and benefited by the release of the Palm Pre, whose qwerty keyboard seems to make it a BlackBerry competitor.
Equities research firm Morningstar says that competition from new entrants like the Pre could ” pose a formidable challenge” to the company in its upcoming quarters, especially as demand remains soft and competing operating systems growth in strength.
One the other hand, the company’s first-quarter sales likely will benefit from Verizon Wireless’ extended “Buy One, Get One” offers on BlackBerry phones.
UBS analyst Maynard Um goes one step further, boldly arguing that the launches of the Palm Pre and latest iPhone will help rather than harm the company: “Although perhaps a little counter-intuitive, we believe the launch of the Palm Pre and Apple iPhone will benefit RIM due to increased carrier competition. We believe Verizon will continue to promote BlackBerry and think RIM can also benefit from potential renegotiations between AT&T and Apple,” Um said in a report. “We believe RIM’s guidance for the August quarter is likely to exceed our [estimates and Wall Street estimates], driven by new device launches as well as increased operator competition in the quarter.”
Indeed, shares of RIM have risen about 19 percent since early May, which UBS says reflects optimistic expectations and guidance for the first half of 2010. And despite its more cautious outlook, Morningstar says that strong BlackBerry sales bode well for the company.
The Pre effect won’t have a presence on RIM’s first-quarter results, which will be released after the market closes on June 18. A poll of 36 analysts conducted by Yahoo! Finance shows that the market expects the company to continue its gains. The company is expected to generate earnings of 93 cents per share on sales of $3.41 billion.
As for the second quarter, when the effect of the Palm Pre launch is more fully felt, those analysts predict RIM’s sales will rise to $3.58 billion, generating earnings of 95 cents per share.
UBS’s final comment: “While competitor launches will likely raise the bar for all handset vendors and has the potential for increasing volatility in the space, over the near-term, we expect RIM to benefit from the increased carrier competition given its strong position at Verizon and AT&T.”