RIM: iPhone? What iPhone?

The BlackBerry maker's shares surged June 29 after it posted stellar quarterly results on the launch day for its highly touted Apple rival

Images of people camping out in front of Apple (AAPL) stores days in advance of the iPhone going on sale may say a lot about consumer demand for the new multi-function device, but should that necessarily worry Apple's competitors, like Research in Motion (RIMM)?

Lots of people don't think so. Between concerns about compatibility for corporate e-mail services (see, June 28, 2007, "Not Everyone Wants an iPhone") and the constraints of a five-year exclusive deal on AT&T's slower-speed network, it doesn't appear the BlackBerry is feeling any heat at its back yet.

That the business world has adopted the BlackBerry as its preferred multimedia calling device continues to be seen in Research in Motion's robust financial results. After the market close on June 28, the Waterloo (Ont.) company reported a 74.6% surge in profit for the first quarter of fiscal 2008 to $1.17 a share from 67 cents a share a year earlier.

Revenue leaped 76.5% to $1.082 billion from $613.1 million in the year-ago quarter, more than three-quarters of it generated by devices, and the rest by service, software and other offerings. The company said it shipped about 2.4 million devices and added roughly 1.2 million BlackBerry subscribers during the quarter.

Research in Motion also announced a three-for-one stock split and projected earnings for the second quarter would climb to between $1.37 and $1.49 a share on estimated revenue of $1.3 billion to 1.37 billion. Standard & Poor's maintained its hold rating on the stock, but raised its earnings forecast for fiscal 2008 to $5.56 from $4.88 a share and hiked its 12-month target price to $195 from $175.

"[The company's] guidance for August bested our projections and supports our belief that consumer growth will continue despite pending, but higher-priced, handset competition," Standard & Poor's said in a research note on June 29. (S&P, like, is a unit of The McGraw-Hill Cos. [MHP].)

The launch of RIM's first consumer-oriented smart phone, the Pearl, last September, helped accelerate the company's growth and now it looks as if it has accelerated once again in the past few months with the launch of Curve, its second consumer-oriented phone, according to Tavis McCourt, an equities analyst at Morgan Keegan & Co.

In its June 29 research note, RBC Capital Markets upgraded the stock to its top pick, saying the growth drivers were not yet priced into the shares. The company's profit outlook for the second quarter shows it's poised to expand into larger markets based on broader channel expansion by Verizon, AT&T and Vodafone than in the past, new users in Europe, Asia and Latin America and gains from new subscribers and product upgrades.

RBC boosted its earnings forecast for fiscal 2008 to $5.85 a share from $5.24 on a revised revenue projection of $5.6 billion, versus $5.1 billion previously. "The stronger momentum should mitigate the impact of the pending iPhone launch to RIM's valuation multiple," RBC said in its note.

RIM shares catapulted 21% to $199.81, while shares of competitor Palm (PALM) shares weren't as lucky, falling 3.3% to $16.02 on June 29.

The BlackBerry has little to worry about from the launch of the iPhone, mainly because Apple isn't marketing the iPhone as a corporate device and doesn't intend for it to replace the BlackBerry or the Palm in the workplace, said McCourt at Morgan Keegan. Plus, Apple's strength is in multimedia capabilities and there's[d1] limited demand for that in the workplace, he said.

But in the near term, the iPhone may prove a marginal distraction to consumers shopping for smart phone devices in AT&T stores, which were formerly went under the name Cingular, he said.

"About 10% to 15% of the BlackBerrys sold worldwide are sold through Cingular. If people going into Cingular stores are going to see nothing but iPhone displays, it can't help but hurt other device sales from Cingular in the next couple if weeks," McCourt said. "Once the media hype of the iPhone dies down a little bit, there will be a much more normal distribution of handset sales through AT&T."

From a longer term perspective, however, the iPhone is providing a lot of free marketing for the entire smart phone sector by making consumers aware of all the things they can do with the devices, he added.

McCourt doesn't own RIM stock and Morgan Keegan doesn't do investment banking with the company. RBC Capital Markets makes a market in RIM stock and may act as a principal with regard to the sales or purchases of the stock.

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