Thursday, June 29, 2006

Bear Stearns: Earnings Previews for Palm (PALM) and Research in Motion (RIMM)

It's that time again when the public companies start stating their earnings from the previous quarter. SeekingAlpha picks up two research notes that Bear Stearns analyst Andy Neff sent off to client previewing today's close of market earnings calls for Palm (PALM) and Research in Motion (RIMM).

In his note about Palm, he wrote:

PALM 4Q06 EPS after market close – expecting solid results but guidance may be tempered. Pre-options EPS of $0.23 vs. $0.19 a year ago (First Call is at $0.23) – revenues of $405mm, up 21% YoY, (First Call is at $402mm) on Treo shipments (sell-in) of 610,000. While we expect PALM to report strong result with potential for upside surprise, our negative view of the stock is due to mounting concerns about intensifying competition and aggressive pricing in the smartphone market. Due to its high ASP ($512 in 3Q06) and device-only model, we see potential for significant ASP compression as handset market leaders with established carrier relationships (NOK, Samsung, RIMM, etc.) enter the smartphone segment on mass in CY2H06 with comparably (or better) designed handsets at much lower prices as witnessed in recent launch of MOT Q.
Regarding Research in Motion, Neff wrote:
RIMM 1Q07 EPS after market close – expecting results in-line with our above-consensus estimates but will net sub adds rejuvenate? Pre-options EPS of $0.67vs. $0.56 a year ago (First Call is at $0.65) – revenues of $610mm, up 34% YoY, (First Call is at $602mm) on total net sub adds of 675,000. While we expect RIMM to report in line with our above-Street estimates and provide guidance in line with our below-Street estimates, key issue for RIMM is whether its net sub adds growth rate will rejuvenate.

While RIMM also faces competitive challenges, we believe that RIMM is more insulated in the near term given 1) its proprietary software/services business (i.e., needs BlackBerry handsets to get BlackBerry service) and 2) RIMM’s ASP is already at similar levels to its competitors (i.e., $350). However, as a proprietary solutions provider, RIMM does face long-term challenges from emerging device-agnostic, standard-based solutions from Microsoft, Good Technology and others.