Ever since Apple Inc.’s (AAPL) iPhone hit the market, Research In Motion Ltd. (RIMM) started losing its leadership position. For the last couple of years, the company failed to launch any device that could capture the market from iPhone or Android-based high-end smartphones.
Research In Motion reported disappointing financial results for the second quarter of fiscal 2012, which fell well short of Zacks Consensus Estimates. Nevertheless, its extreme low-level current valuation, which plummeted 69% in the last year, may provide a cushion for further downslide. We, therefore, reiterate our Neutral recommendation on the stock.
Gross margin in the second quarter of fiscal 2012 was 38.7% compared with 44.5% in the year-ago quarter and 43.9% in the previous quarter. We believe this was primarily attributable to an unfavorable product mix toward low-end BlackBerry devices, resulting in a falling average selling price (ASP). Management’s guidance for the third-quarter expected gross margin is 37%, indicating the company’s growing troubles with high-end smartphones.
Nevertheless, several industry analysts predicted that Research In Motion may launch its first 4G BlackBerry smartphone in the first quarter of 2012. At present, the company is developing a super-fast Long Term Evolution (LTE) network-based BlackBerry, which will run on a QNX operating system. Management declared that its newly launched BlackBerry 7 smartphones received encouraging initial market traction.
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