Competition Squeezing RIM Margins

RIM's margins are expected to be under pressure as other players bring new smartphones to market.
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NEW YORK (TheStreet) -- We estimate that Research in Motion (RIMM) has maintained BlackBerry gross margins of around 40% since 2005, except for the dip seen in 2009. However, RIM's margins are expected to be under pressure as players such as Apple (AAPL) - Get Report, Motorola (MOT) , Nokia (NOK) - Get Report and Google (GOOG) - Get Report bring new smartphones to market.

RIM's stock is significantly impacted by BlackBerry's margins since BlackBerry smartphone hardware accounts for 50% of RIM's stock value according to our estimates. We currently have a Trefis price estimate of $72 for Research in Motion's stock, about 24% above the current market price of $55.

Price Declines and Higher Input Costs

We estimate that average BlackBerry pricing will decline from $345 in 2009 to $305 in 2010. The component costs for the average BlackBerry may not drop as fast as pricing as RIM tries to offer more powerful and feature-rich smartphones than its competitors.

The average of Trefis member forecasts for BlackBerry's gross profit margin indicate a decline from 36.7% in 2010 to 31% by 2016, compared to the baseline Trefis estimate of a decline from around 35% in 2010 to 29% by the end of the Trefis forecast period. If member estimates are indeed true, it would imply an upside of 4% to the Trefis price estimate for Research in Motion's stock.

However, despite speculations that RIM may lose out to Apple in the long run, the company has performed well in the last quarter. The company shipped 12.1 million BlackBerry smartphones during the period, a quarterly record for RIM and a 45% increase from the year before. RIM now has more than 55 million subscribers according to latest earnings release.

You can drag the forecast trend-line above to express your own view, and see the sensitivity of RIM's stock to BlackBerry gross profit margin.

Our

complete analysis for the $72 Trefis price estimate for Research in Motion's stock is here.

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