Citigroup Remains Seller of Research In Motion, Cites "Android Invasion" (RIMM)

rim-logo12/18/2009-Following Research In Motion's (NASDAQ:RIMM) better-than-expected quarterly results Thursday evening, Citigroup Research issued a note to clients discussing the firm's results.

Research In Motion reported Q3 EPS of $1.10, topping consensus estimates of $1.04. Sales in the quarter surged 41% year-over-year to $3.92 billion, and came in ahead of consensus estimates of $3.78 billion. RIM said 4.4 million new BlackBerry subscriber accounts were added in the third quarter, better than consensus estimates of 4.1 million.

In addition, RIM issued better than expected guidance, anticipating Q4 EPS of $1.23 - $1.31 (vs. consensus estimates of $1.12), on sales of $4.2 billion - $4.4 billion (vs. consensus estimates of $4.11 billion).

However, Citi analyst Jim Suva said that despite strong November results & February guidance, the BlackBerry maker would run into 2010 headwinds with slowing in North America sales, leaving the question as to whether its international business can offset this slowing.

Suva said that Citi's research indicated RIM's North America sales were flat quarter-over-quarter due to incandroidreased competition, rather than a saturated market, with "Android invasion underway." Citi said that while Verizon (NYSE:VZ) has been a great partner, they see a shift in loyalty, possibly setting up a large growth hole in 2010.

While international sales indicated a 38% growth rate q/q, they do not think it is sustainable as they expect carriers to demand lower pricing on both devices as well as ARPU. In addition, Citi doesn't expect long-term support from Asian markets as well.

Citi concluded they "Remain sellers of RIMM & recommend using strength to reduce positions. Acknowledging solid print & guidance, we think 2010 is shaping up to be highly competitive year w/no sign of iPhone slowdown & Android invasion kicking into high gear. We continue to believe that RIMM will be faced with either higher marketing spend, slower unit growth, or lower ASPs. North America has already gone flat & could plausibly decline next year, placing incredibly heavy burden on international growth to meet estimates. Potential (eventual?) launch of Verizon iPhone looms as large risk. Estimates edge higher on results, but our concerns increase given flat North American growth. Target increases slightly to $52 from $50 on higher EPS estimates, slightly lower forward multiple."

by Chip Brian