Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) has sought to use competitive pricing in a bid to woo some of its lost customers; this means that, the Canadian-based tech company, is trading its sales margin to sales units. According to Barclays Plc (NYSE:BCS) Equity research team, Research in Motion’s discounted prices on BlackBerry 7 are not sustainable. Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) aggressive discounting on BB7, drove FQ2 results beyond analyst expectations and still seems likely to ease the pressure on HQ2 results.
Aggressively Discounted BlackBerry 7, on FQ2
However, the analysts are questioning Research in Motion’s ability to sustain its aggressive pricing, going into the third quarter of 2012. While the pricing is likely to improve the number of units sold, thereby replicating on its dwindling market share, it will cost Research in Motion a significant chunk of its unit margin. Consequently, this is likely to translate to the overall company margin. The company’s sales were up by $300 million, to settle at 2.8 billion versus the consensus 2.5 billion. However, earnings per share declined from $0.47 to $0.27. The company’s shares rallied 19% following the unexpected earnings that exceeded analyst expectations.
Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) expressed that its aggressive pricing strategy, which includes an irreversible monthly, will carry on to the next quarter (FQ3), but Barclays equity analysts believe that this may become problematic with time as it is unsustainable. The analysts wrote, “we view both of the improvements (ASP and GM) unsustainable,… as it is unlikely the BB7 mix (from BB6) within the subscriber base will continue to increase much further”.
The year 2013 will be marked by two major launches by Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM). The long awaited Blackberry 10 will hit the markets in early 2013, and will be in two versions. There will be a full Qwerty keypad BB10, and full touch BB10. The launch of the two versions comes subject to increased demand from carriers, according to Research in Motion management team. However, the analysts are of the opinion that the launch will require promotions globally, despite the remarks from management.
The analysts believe that BB10 is likely to boost 2013 performance, although it will have to pass a stern test of competition, if this dream is to be realized.
Research in Motion still maintains its target of cutting cost by up to $1 billion by the end of FY12, and targets to do so by trimming its bill of materials costs, and supply chain and operational / organizational efficiencies, though there were limited clarifications on operating costs. The analysts estimate approximately an 80% reduction in operating expenses.
The analysts from Barclays Equity research, have also revised various expectations on Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) upwards, including the 2013/2014 earnings per share; from the initial $(1.98)/$(1.04) To $(1.31)/$(0.56) [(Brackets indicate Loss)]. They have also raised their price target on the stock from $6.00 to $7.00, based on the company’s better cash position.
At the time of this writing, Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM), was trading at $7.94 per share, up $0.80, or 11.20% from yesterday’s close.