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RIM Banks on Blackberry 7

Stocks in this article: RIMM

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Research in Motion (RIMM) has historically maintained a strong profit margin of 40% on its BlackBerry smartphones.

However, over the past two years, its margin has slipped slightly to 37% due to increased competition from Google's (GOOG) Android-based smartphones, Motorola Mobility (MMI), Microsoft (MSFT) and Apple (AAPL) in the rapidly expanding smartphone market.

Research In Motion banks on the Blackberry 7 to boost sales, profits.

Rising input costs and declining smartphone prices are going to keep the pressure on BlackBerry's margins for the time being. In its updated guidance for the fiscal first quarter of 2012, RIM expects the smartphone sales to be at the lower end of the range of the 13.5 million to 14.5 million units sold that it guided in March, and this will likely result in slower market share growth.

RIM also expects a shift in the mix of devices shipped towards handsets with lower average selling prices. Both of these factors will negatively affect its profitability.

RIM has an opportunity to rebound with Blackberry 7 OS, its latest operating system for its smartphones and the two new phones based on the upgraded OS. While we estimate BlackBerry's gross profit margin will decline to under 28% by the end of our forecast period, Trefis members predict a smaller decline to just under 33%, implying a potential upside of about 10% to our price estimate for RIMM's stock.

We currently have a Trefis price estimate of $68 for Research in Motion's stock.

RIM has had to constantly reduce BlackBerry prices due to increasing competition. We expect the pricing to decline from $345 in 2009 to $283 in 2011, and further to $195 by the end of our forecast period. When RIM introduced BlackBerry Storm to match up against the iPhone, its manufacturing costs were higher than its other BlackBerry products as well as the iPhone.

The Blackberry 7 has a few improvements over preceding versions like faster performance for touch-screen navigation, Web browsing, video and gaming and support for Near Field Communication (NFC) technology.

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