RIMM: Forecast Hurt By Curve

Shares of Research In Motion (RIMM) are plunging today after the company guided for fiscal third-quarter revenues of $3.6 billion to $3.85 billion. The Zacks Consensus Estimate had called for sales of $3.88 billion.

Part of the problem is the phone models being sold. During yesterday's conference call, RIMM executives talked about the potential for lower average selling prices (ASPs). The Curve 8520 has been doing particularly well, though it was intended to be the lowest-priced Blackberry.

Though RIMM intends the Curve 8520 to be an entry-level phone, it's difficult not to believe that cost-conscious consumers view it as a viable alternative to more expensive models. After all, at the end of the day, it is just a phone.

Competition may also be an issue. Co-CEO James Balsillie talked about a "land grab" early in the conference call. Balsillie also acknowledged there is an "an element of price elasticity and there is an element of [competition]." In non-corporate speak, the competition for smartphones is getting more intense.

It's difficult to say what RIMM's revenue forecast means for Apple (AAPL), Google (GOOG), Palm (PALM), Motorola (MOT) or Nokia (NOK). The reason is that the revenues numbers will be affected by a higher proportion of RIMM's lowest-priced phones being sold. However, the economy could also being a playing a role.

For investors, the key point is that RIMM is not living up to expectations. Fiscal third-quarter earnings estimates had been trending higher heading into the earnings release, and yesterday's news clearly showed that that optimism was misplaced. The company surprised with its revenue guidance and the stock is falling as a result. My expectation is that we will see full-year earnings estimates cut over the next few days.

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