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Pundits Fail to Read RIM

Stocks in this article: RIMM

NEW YORK ( TheStreet) -- Yet another beat-and-raise quarter from Research In Motion (RIMM) keeps the pundits scratching their heads. This shouldn't be happening: "I went into my local Verizon (VZ) store last month, and they told me Android is outselling Blackberry almost 10:1. How could RIM beat and raise?"

This reminds me of the reaction to the 2004 election when left-wing activists in San Francisco and Manhattan scratched their heads in surprise over George Bush's big win: "I don't know a single person who voted for Bush, so how could he win by 3 million votes?" If all the people you poll are on the Upper West Side or the UC Berkeley campus, well...

There was so much commentary on CNBC repeating the mantra that RIM must really be doing poorly because Apple (AAPL) iOS (iPhone) and Android are beating it everywhere, that I forgot to count the instances. So with RIM beating and raising yet again, what is it that these pundits don't understand?

First, these pundits don't realize that in most of the countries of RIM's main competitor is not Apple or Android, it's Nokia (NOK). The Finnish company has about one-third of the world unit market for mobile phones, even though its market share in the U.S. is very close to zero. This means that in many countries, Nokia constitutes close to 50% of the market.

The U.S. smartphone market is uniquely warped, as Motorola (MOT) CEO Sanjay Jah rarely forgets to remind us. In the U.S., almost all high-end smartphones sell for $200, while there is a second tier around $100 and then others at zero, all with a two-year contract.

Considering that most smartphone monthly bills run about $100, or $2,400 for two years, the upfront price difference is peanuts. Who cares if it's $200, $100 or zero upfront, when I'm really paying $2,400 after that?

As a result of this warped U.S. pricing, the market has tilted heavily in favor of the smartphones most expensive to manufacture, most notably the iPhone and high-end Androids. Why not get the best for only $200? This means RIM is more challenged in the U.S. market.

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