Steady Rise Expected for RIM’s Capital Expenditures
Research in Motion’s (NASDAQ:RIMM) capital expenditures have increased sharply, from around $178 million in 2005 to over $1 billion in 2009 [1]. This can be attributed to the acquisition of new facilities and equipment for accommodating RIM’s expanding employee base and expansion of BlackBerry infrastructure.
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However, as percent of gross profit, RIM’s capex declined till 2007, but rose steadily over the last two years. We expect the rising trend to continue as competition with smartphone players like Motorola (NYSE:MOT), Nokia (NYSE:NOK), and Apple (NASDAQ:AAPL) drives RIM to invest further in building out its capabilities (impacting both R&D and capex). We currently have a Trefis price estimate of $70 for Research in Motion’s stock, about 57% above the current market price of $45.
In the past, CapEx as % a of Gross Profit decreased from 17.5% in 2005 to 15% in 2009 [2]. The average of Trefis member forecasts for CapEx as % a of Gross Profit indicate an increase from 15% in 2010 to 16% by the end of the Trefis forecast period, roughly in line with baseline Trefis estimate. The member estimates imply an upside of 1% to the Trefis price estimate for Research in Motion’s stock.
You can drag the forecast trend-line above to express your own view, and see the sensitivity of RIM’s stock to CapEx as % a of Gross Profit.
Our complete analysis for Research in Motion’s stock is here.
Notes:
1. Represents calendarized figures based on reported capital expenditures in RIM’s SEC filings
2. Calculated based on calendarized RIM capital expenditures and gross profits