RIM outshines Palm but fails to dispel all doubts

Fri Dec 18, 2009 11:50pm EST
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OTTAWA (Reuters) - BlackBerry maker Research In Motion may have zipped past expectations for its quarterly results and forecast, but it hasn't dispelled all doubts about its staying power to lead the race.

By contrast, Palm Inc reported disappointing results on Thursday on weaker consumer demand, and analysts said it looks likely to focus on boosting sales rather than profit in the near term.

In an increasingly competitive smartphone market, RIM more than held its ground in its third quarter, boasting particularly strong growth in consumer and international markets. It also surpassed analyst expectations for the current fourth quarter.

Even as RIM's stock jumped 10 percent on Friday, analysts were questioning the company's ability to maintain profit margins as it battles for market share with rival products, such as Apple's iPhone and Motorola's Droid.

Round one in the smartphone battle goes to RIM, said UBS analysts Phillip Huang and Maynard Um, but the second round looks like a tougher fight.

"Handset industry competition is set to increase with both traditional and non-traditional vendors ... (which) may use price as an incentive to drive units," they wrote in a report which raises their earnings estimates and stock target price.

RIM shipped a record-breaking 10.1 million phones in the third quarter and expects to ship 10.6-11.2 million phones in the current quarter at an average selling price of $320.

The company reported after markets on Thursday a third-quarter profit of $1.10 a share and revenue $3.92 billion, well ahead of analysts' expectations for a profit of $1.04 a share and $3.78 billion in sales.

But strong international sales masked a string of structural weaknesses, said Sanford C. Bernstein analyst Pierre Ferragu.   Continued...

<p>A person poses while using a Blackberry Bold 2 smartphone at the Research in Motion (RIM) headquarters in Waterloo, November 16, 2009. REUTERS/Mark Blinch</p>