RIM's Partnerships Work Wonders

The BlackBerry maker's blowout quarter is tied to the success of its partnerships.
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SAN FRANCISCO -- BlackBerry maker

Research In Motion

(RIMM)

continues to fly high even as its rivals have stumbled.

In the face of a recession, RIM had a dazzling blow-out fourth quarter, as it more than doubled its revenues and profit, issued robust guidance and added 2.2 million net new subscribers.

RIM's solid performance has sent investors cheering. Shares of the company were up $6.94, or 6%, to $122.73 in recent trading Thursday. Despite an uncertain macroeconomic environment, RIM's stock is up 8.5% this year, while

Apple

(AAPL) - Get Report

is down 21.6% and

Motorola

(MOT)

has fallen 39% in the same period.

The secret behind RIM's success? Analysts say it's likely the company's relationship with wireless carriers.

Much of RIM's growth was driven by cell phone service providers that chose to aggressively promote RIM's products over its competitors, giving the handset maker an advantage that its rivals can only aspire for.

"RIM has taken more of a partnership approach with the carriers as opposed to Apple's take-it-or leave-it kind of stance," says John Derrick, co-manager of the

Holmes Growth Fund

(ACBGX)

, which holds RIM in its portfolio.

"They have made the BlackBerry a very profitable product for the carriers, which is working to their advantage," he says.

A hard sell of RIM's products by wireless carriers, across the board, helped drive RIM's fourth-quarter earnings well above the Street's estimates.

Net income for the quarter jumped 120% to $412.5 million, or 72 cents a share, while revenue rose 102% to $1.88 billion. Analysts polled by Thomson Financial were expecting revenue of $1.85 billion and earnings of 70 cents a share.

For the current quarter, RIM forecast revenue in the range of $2.23 billion to $2.3 billion, and EPS in the range of 82 cents to 86 cents. That is higher than analysts' consensus of $2 billion in sales and EPS of 75 cents.

"It was a very good report," says Derrick. "They are growing their subscriber base while maintaining margins."

"RIM continues to be a good multi-year story and we think they can grow their business from $6 billion in revenue in fiscal 2008 to about $30 billion over the next few years," he says.

"RIM is a must-own for most investor types," says Rob Sanderson, an analyst with independent research firm American Technology Research in a note. "There is no denying the business momentum at RIM."

Unlike Apple which has tied itself to an exclusive deal with

AT&T

(T) - Get Report

, RIM has bagged the goodwill of most major carriers, who are now aggressively pushing the company's products.

The heavy promotion of the CDMA BlackBerry Pearl drove "high numbers" of new device activations in the U.S. and Canada, Jim Balsillie, co-CEO of RIM told analysts on the earnings conference call.

Verizon

(VZ) - Get Report

Wireless promoted the pink Pearl 8130, while Sprint offered the amethyst and red colored versions of the phone, which helped draw in consumers.

"The attractive device and service pricing and the Valentine's Day promotions in national media, helped sustain the launch momentum through the fourth quarter," said Balsillie.

With carriers backing it to the hilt, RIM expects to see no letup in demand for its phones. "The first quarter of fiscal 2009 is shaping up to be strong, as carriers replenish inventory following the exceptional sell-through in Q4 and our CDMA partners gear up for the launch of the CDMA curve," said Balsillie.

Unlike its competition, which has seen newer products bring down their margins because of lower pricing and strains on the manufacturing, RIM hopes to stay firm on its gross margin, a key metric for handset makers.

The company posted gross margin of 51% in the fourth quarter, up from 50.7% in the previous quarter, and said expects it to remain flat in the current quarter.

"To me, the reason for the beat is margins were better than people thought," says Derrick. "Though it is down year over year, RIM has done better sequentially despite increasing competition."