Ockham Reseach - the Razor's Edge

Blackberry Boosts RIMM’s Bottom-line

Research In Motion ( RIMM) expects to see substantially better growth in their smart phone subscribership base when they report 4^th quarter results in April, as reported through Co-CEO Jim Balsillie. The Waterloo, Ontario company credits excellent holiday sales performance of their Blackberry mobile smart-phones. Furthermore, Research In Motion was prepared for a post holiday slowdown in sales, however their fears of slowing sales were not realized. RIMM was looking to gain an aggressive 1.82 million new subscribers in this quarter, but it appears that they will beat those expectations by

15-20%. This will bring their subscriber base to about 14 million. They have grown quite impressively in a short time; it is hard to believe that in July of 2006 RIM was trading in the low $20’s.

However, even as the subscriber base increased RIMM refrained from raising earnings expectations from 66 to 70 cents per share. It is possible they are just being cautious so as not to disappoint the market. In addition, RIMM may have overestimated the replacement rates for Blackberry’s as the growth in subscribers has not lead to as many new units sales as they had hoped. Not raising the estimates also reflects a tone of uncertainty about the slowing U.S. economy, which could slow new subscriber growth and unit sales in the coming quarters.

There is no doubt that Research In Motion had an excellent quarter and the stock is starting to recover from a rocky January and early February. The shares are up nearly 10% and have achieved a 7 week high. While we congratulate RIMM on their strong performance, we are not prepared to hop on the bandwagon. Our Ockham rating, reflecting the price before today’s rally, has just turned from a buy to a Hold. Especially after the 10% appreciation today, now is not the optimal time to buy RIMM. Research In Motion is selling within their historical normal ranges of Price-to-Sales and Price-to-Cash. The telecom sector has slipped in out rankings of sectors. In this case, although valuations are rising in RIMM’s peer group, other sectors are rising more rapidly thus causing the increase in rank to 7th place out of 10 sectors followed. So, if you followed our ratings calls you would be in RIMM right now but as for what to do at this moment; the stock is fairly valued at this point and we do not advocate chasing momentum in just about any instance.

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