Both companies’ stock has been bid up, though for opposite reasons, and both companies seek to expand their traditional markets by intruding on the others’ turf. They both make smartphones for a dedicated cadre of end users in North America, and they’re expanding to other geographic markets.
That may be where the short list of similarities between Research In Motion Ltd. and Palm Inc. ends, except for the competition between them in the United States.
“The RIM Pearl probably is the most popular smartphone in the United States right now,” said Todd Kort, analyst at Gartner. “Palm Treos probably are second.”
Otherwise, the two vendors are a study in contrasts, according to the analyst.
One underlying theme, perhaps, is the machinations of Wall Street: Win, lose or draw, they’re playing volleyball with your company’s share price. A lofty, lazy air-ball floating by the net can be spiked to the ground in moments. Or it can continue to float there, defying gravity. Both Isaac Newton (remember the apple, no pun intended, that plunged to the ground?) and David Copperfield (remember the damsel who didn’t?) would be proud of Wall Streeters, who seemingly can spike or levitate a company’s stock as emotion dictates.
Serving aces
Perhaps RIM is worthy of primary consideration, in the wake of its earnings report.
As Current Analysis’ Avi Greengart said, “They’re on a major roll and their executives know it.”
The company posted a fat increase in revenue last week-$930.4 million for the fiscal fourth quarter, a 66-percent leap from the year-ago quarter-though its fiscal Q4 profits, at nearly $188 million, were harder to judge, as the year-ago quarter included a $163 million chunk of its patent-infringement settlement with NTP Inc. Subscriber additions for the quarter were up a cool million, bringing the company’s base to about 8 million crackberry addicts.
Traders had already bought their own hype, apparently, and sent RIM’s stock sky high prior to the company’s earnings call, only to spike it when their overblown expectations of even greater revenue and profit failed to materialize. Oh, and there was a surprise-Wall Street doesn’t like surprises-that the Securities and Exchange Commission had upgraded its investigation into RIM’s past stock-option practices from “informal” to “formal.” RIM assured analysts last week that its earnings restatement, based on its self-investigation of stock grants, would not materially affect its financial results.
The company said that its consumer-oriented BlackBerry Pearl device had succeeded in lifting both revenue and subscriber growth, while its new enterprise-oriented 8800 model also is exceeding expectations. Both financial analysts and market analysts tended to disregard Wall Street’s setup-and-spike approach by applauding RIM’s financial fundamentals and its expansion beyond its traditional base of business users.
Playing the game
“This is a game that RIM plays every quarter,” Kort said. “They set expectations low. But they end up on an impressive upward trajectory. They’re kicking butt. The company has been growing fast enough to raise doubts on sustainability.”
“I actually see it the other way,” the analyst continued. “I talk to a lot of Fortune 500 companies and I don’t see any interest in switching to Microsoft- or Symbian-based products. That’s good news for a company (like RIM) with a proprietary operating system.”
RIM appears to have finally mastered voice quality as well as form factor and style, Kort said. Its integration of multimedia functionality on BlackBerries somewhat insulates it from an Apple Inc. iPhone threat as well. Thus it has made the difficult crossover from an enterprise-centric company to the riskier, more competitive consumer market, according to the Gartner analyst.
“RIM is in good shape to grow its business as mobile e-mail drives the market,” Kort said, “at least for the next 12 months.”
According to the Gartner analyst, RIM faces several possible threats: Microsoft Corp.’s launch of Windows Mobile 6 next month could eat into RIM’s user base due to the apparent ubiquity in corporate America of Microsoft Exchange servers. While BlackBerries tend to be well-ensconced in the executive suite, cheaper choices such as the Samsung Electronics Co. Ltd. BlackJack could make inroads among the rank-and-file, stunting RIM’s growth.
Palm digging in
Palm management told analysts last week that growth in the smartphone sector would sustain its position long enough for a multi-pronged strategic approach to bear fruit. The company’s executives, however, declined to address recent-indeed, perennial-speculation that it is the target of a merger or acquisition.
In contrast to RIM’s situation, Palm’s stock price apparently has been run up on chatter that it could be an M&A target. Another basic contrast: Palm has come from a consumer PDA heritage and is crossing over into the enterprise space. The company also stands as a distant shadow to global market leaders Nokia Corp. and Motorola Inc.
Palm will focus on differentiating its Web browser, cut overhead costs and speed time-to-market, which UBS analyst Maynard Um pronounced a “sound” strategy. Wall Street, however, beat down the company’s stock price, perhaps disappointed that no M&A talk emerged.
Palm will pursue shoring up its installed base among consumers in the Americas, as well as going after small- and medium-sized businesses and geographic expansion in the Eastern Europe, Middle East and Africa regions and China. In addition to using the Palm OS-still popular among its installed base-the company plans to bring Linux-based products to market this year, while it employs Windows Mobile for enterprise and international markets.
“Palm has always done well in the Western Hemisphere,” Kort said. “For the company to grow, it needed a foothold in Europe and in the enterprise. Employing Windows Mobile has helped those efforts.”
“Palm is hanging in there, more or less treading water,” the Gartner analyst added. “I’m confident that Palm can continue to exist as an independent company, though there’s dwindling interest in the Palm OS over time due to its inability to multitask. So they’re mining their installed base, counting on loyalty and doing a decent job at it.”
The downside?
“Treo hardware design has gotten stale over the past three years,” Kort concluded. “In this fashion-driven market, that’s death.”
