RIM's numbers show 140% surge and BlackBerry becomes standard fare

Rethink IT, May, 2004

Looking over this month's results and market value table, your eyes can't help but be drawn to the exceptional performance of Research in Motion (RIM), the wireless PDA market leader, which has the confidence of the US stock market re such an extent that it is now valued at over 12 times its revenues, plus the cash it has in the bank, or over 50 times its annualized profits.

For its fourth quarter it is approaching a 20% margin and has grown a stupendous 140%-plus over this time last year.

If 2004 is going to be the year in which mobility becomes one of the key drivers in the enterprise market (our own survey found that 27% of CIOs think of mobility as critical for this year), then it seems that not all of that revenue is headed for smartphones, and that there is quite a bit of life in the RIM BlackBerry devices yet.

On the upside far the quarter there were many important landmarks for RIM, breaking $200m for The first time in the quarter, getting back into profit for both the quarter and the year and ending its year just a touch under $600m.

It has added some 204,000 BlackBerry subscribers in the quarter taking total subscribers to 1,069,000, and in the process has signed deals with SonyEricsson, Samsuug and Siemens to include BlackBerry function in their smartphones and wireless handhelds, and has added deals with Nextel, Cingular Wireless, Orange, T-Mobile, KPN, Singtel, Verizon, 02, Swisscom, Telefonica Moviles Espana, Telecom Italia Mobile, Cable & Wireless, SrarHub and Rogers Wireless to its operator roster and has signed more business with Vedafone in the UK and the Netherlands.

The biggest move this quarter, that has virtually guaranteed the company's future, is the sale of 12.1m new shares for around $907m, taking RIM's cash reserves to over $1.1bn.

Potentially RIM needs a big chunk of money to either pay o/T NTP, which has claimed patent infringement and which got the first verdict at a district court last summer, or re pay for legal fees.

The last filings for RIM showed that the patents in question are all being reexamined by' the US Patent and Trademark Office and are the subject of an appeal, but the monies set aside so far re pay for the case have already reached $70.5m and if the case goes against RIM it will be forced to license the technology from NTP or stop selling the BlackBerry in the US.

The company says, "If we are nor able to overturn on appeal rite injunction, we will bc unable to continue to provide BlackBerry service in the United States and to continue to use, sell or manufacture our wireless handhelds and software in, or to import them into, the United States, the largest market for our products and services (representing 83.5% of our consolidated revenue in fiscal 2003), unless we are able re negotiate a license from NTP at that time, which may not be available to us at a reasonable cost or at all. If our appeal ultimately fails and a license from NTP is nor available to us, we would have to terminate the contractual arrangements with our customers, carriers and resellers in the United States, and we could be subject to claims for any losses they incur as a result," which pretty much sums it up.

But the marker seems to have confidence that this will all sort itself out and was happy re buy into RIM for the $907m. And on the positive side of the legal front, RIM has settled with Good Technology which sounds like Good is licensing some technology from RIM, which received a lump sum settlement and will get ongoing royalties.

The thing about many of the deals it announced in the quarter is that they will gradually become revenue producing as they go forward, so RIM is now predicting that its revenue for the second quarter will go even higher at $270-290m, which will be profitable and cash generative.

At the same time, its old rival's software arm PalmSource has also cur a deal with it this quarter to try to jointly develop a software client that enables BlackBerry connectivity to the Palm OS.

Both RIM and palmOne always report within days of each other and if, as we can see, RIM is doing well, then surely Palm must be having almost as good a time?

Although palmOne is doing far better than it has done in the recent past, it remains slightly loss making and it is likely to be the last quarter that palmOne remains bigger than its arch-rival RIM.

PalmOne reported revenue of $242.5m for its third quarter, up 22.6% from the $197.9m reported a year ago, but made a net loss of $9.3m, which is vastly improved against the year-ago quarter when it lost $172.3m.

The company reports strong demand for its Tree smartphone, an average selling price up at $233 per device from $169 and it holds cash of $240m.

During the quarter, palmOne sold 938,000 devices, bringing its total to 25.3m.

The change in fortunes at these two companies couldn't be more pronounced. Although Palm reached almost $900m two years back, it now seems to be marking dine as RIM, back then only a $300m tiddler, looks set re beat it to the $1bn mark.