Holiday Season Could Lift RIM Stock

WATERLOO, Canada (TheStreet) -- Canadian smartphone maker Research In Motion(RIMM) expects strong sales for the fourth calendar quarter of 2010, according to the company's most recent earnings report.

We agree that the holiday season should help Research In Motion sell more BlackBerry phones, as will the company's growing presence in international markets.

RIM competes mainly with Apple(AAPL), Motorola(MOT) and Nokia(NOK) in the global smartphone market.

Based on RIM's results for its fiscal 2011 second quarter, we have raised the Trefis stock price estimate for RIM from $70 to $72. Our analysis follows below.

Rapid Sales, New Phones

RIM sold around 12.1 million BlackBerry phones in its most recent quarter and expects to sell about 14.1 million next quarter. We now expect RIM's share of the global mobile phone market to reach 3.7% this year, up from 2.7% in 2009. We expect slower share growth thereafter, reaching 7.8% by the end of the Trefis forecast period.

RIM's stock is highly sensitive to mobile phone market share fluctuations. For example, if RIM's market share reached only 6% by 2016, there would be a downside of more than 20% to the $72 Trefis price estimate for RIM's stock.

RIM's market price has ranged between $40 and $50 in the last few weeks, which suggests that investors expect RIM to gain share slowly in an increasingly competitive smartphone market. You can drag the trend-line in the chart above to create your own mobile phone share estimate for RIM and see how it affects the company's estimated share value.

RIM also launched two new handsets during the last quarter: the BlackBerry Torch and the BlackBerry Curve 3G. Meanwhile, the average BlackBerry selling price rose from $299 in the first quarter of fiscal 2011 to around $302 in the second fiscal quarter. RIM expects the average price to reach $312 next quarter.

We expect the average BlackBerry selling price to decline steadily in coming years, falling below $220 by the end of the Trefis forecast period. In the next chart you can create your own BlackBerry price forecast and see how it affects RIM's stock.

RIM anticipates brisk sales during the November-January holiday season. The company also stands to benefit from an increasingly dense web of relationships with carriers, distribution partners and retailers in international markets, which now generate 52% of RIM's revenues.

BlackBerry smartphones are now available through approximately 565 carriers and distribution partners in approximately 175 countries, according to management. RIM plans to push its BlackBerry Torch in international markets next quarter, offering the phone through some 75 carriers. In another article, we argued that the Torch's slow U.S. start could hurt RIM's stock. Although official Torch sales figures are not available, management indicated that sales rose during the first week of September.

Click here to see the complete $72 Trefis Price estimate for RIM's stock.

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