We reaffirm our long-term Neutral recommendation on Research In Motion Ltd.* (BBRY - Analyst Report), the BlackBerry smartphone manufacturer. The company reported disappointing first-quarter fiscal 2014 financial results, which were way below the Zacks Consensus Estimate. Research In Motion currently has a Zacks Rank #3 (Hold).
(*Research In Motion announced that effective Jan 30, 2013, the company would operate around the world under the name BlackBerry. From Feb 4, 2013, the company’s ticker symbol for trading has been changed from “RIMM” to “BBRY” on NASDAQ. The legal name of the company has not changed, for which the approval of the official change by shareholders will be sought at the company's Annual and Special Meeting on Jul 9, 2013. During the time, the company will do business as BlackBerry.)
Why Kept Neutral?
Research In Motion is facing threats from an ever-increasing competitive landscape, a stagnant product portfolio and an unfavorable product mix. The launch of Apple Inc.’s (AAPL - Analyst Report) iPhone came as a big blow to the company. The situation aggravated once Google Inc. launched its Android software and several handset manufacturers adopted the operating system. Microsoft Corp.’s (MSFT - Analyst Report) Windows Phone software is another major competitor.
The company launched its much-awaited BB10-based smartphones. However, it was greeted with a mixed response, especially across the U.S. where it failed to create the expected demand. In the reported quarter, the company sold just around 2.7 million BB10-based smartphones. The total BlackBerry devices sold was 6.8 million, down 12.8% year over year. This indicates the company’s growing trouble with high-end smartphones.
Research In Motion provided a weak financial outlook for the second quarter of fiscal 2014. The company expects marketing expenses to increase sequentially mainly due to the global launch of the BB10-based smartphones and BES 10. As a result, the company will incur an operating loss. Management has failed to keep up with the next-generation market trend, which keeps changing with respect to technology, price and data plan, provided by the wireless carriers.
Meanwhile, the stock price has plummeted nearly 48% in the last year. Further, the company has a healthy balance sheet. We believe that Research In Motion is currently fairly valued.