RIM could cut prices to respond to Apple and Palm
Published: 16 June, 2009
As RIM prepares to report quarterly results on Thursday, most analysts are expecting it to have held up well so far, but are looking for changes in strategy to respond to the recent Palm Pre and iPhone 3GS launches, which hit at its core markets. Meanwhile, now that the Pre is finally in the stores, speculation is rising again over possible bids for Palm, with Dell and HP, the would-be smartphone players from the PC world, on the shortlist.
Many observers are expecting RIM to cut prices on some of its BlackBerry models as Apple and Palm contribute to the downward pressure on pricing of even high end phones. Sprint Nextel has subsidized the Pre heavily to position it keenly, while AT&T has reduced the prices of older iPhone models - now $99 for the 8Gb 3G model - though it has not confirmed speculation that it will slash the data tariff options for the new 3GS (and UK exclusive carrier has actually priced the 3GS more expensively than it did the original 3G iPhone).
If RIM can reduce the base cost of some handsets, it can participate in the price war without asking too much of its carrier partners, especially in the difficult period before it launches its own new models to steal some shine from 3GS and Pre. The Wall Street Journal points out that RIM has steadily cut prices on older BlackBerry variants and introduced new midrange devices to expand its market reach. Earlier this year, RIM co-CEO Mike Lazaridis said the company would be able to leverage the scale it will achieve from more mass market phones to reduce its costs. However, many analysts have expressed concern that this strategy will squeeze RIM's margins by the end of 2009.
For RIM's fiscal Q109, however, forecasts are generally upbeat. JP Morgan analyst Ehud Gelbaum raised his earnings per share estimate from 88 cents to 96 cents, and actually expects margins to improve because many components of the BlackBerry range have fallen in price since last year - though this may change in Q2 as RIM readies the 'Storm 2', widely expected to mimic the Pre by featuring a pull-out Qwerty keyboard as well as touchscreen and virtual keyboard.
Meanwhile, Wall Street is playing the latest round of one of its favorite games, 'who will buy Palm?'. Dell, which has so far failed to launch its much vaunted smartphone, could be a candidate, says analyst Ashok Kumar of Collins Stewart. His latest research note says such a deal would be "born of mutual necessity and represent a strategic fit for both parties". He believes Palm needs to gain 2-3% smartphone market share by 2010 to "remain relevant" against Apple and RIM. This means "Palm would have to scale up from 50,000 units in the May quarter to 1.5m units four quarters out," he added, querying whether, as a standalone firm, Palm has the cash to achieve this. But a rival view is that Hewlett-Packard will go after Palm, to boost its own fledgling smartphone business and its new move into the business-consumer crossover space, which Palm is also targeting.
Another JP Morgan analyst, Paul Coster, estimates that the Palm Pre shipped 100,000 units in its first week - while AT&T says it has already "sold out" of the upcoming iPhone 3GS in terms of pre-orders.
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