RIM’s Wild Ride Could Continue This Week

Last week Research in Motion’s (NASDAQ:RIMM) stock was volatile, and we expect the volatility to remain the same this week as well. We believe that Apple’s (NASDAQ:AAPL) event tomorrow will be as important for RIM’s stock as it is for Apple’s. This is because if Apple announced plans for a cheaper iPhone version specifically targeted for emerging markets along with the iPhone 5, it will further hurt RIM as emerging markets are the only place where RIM has experienced meaningful revenue growth in recent quarters. As shown in the above chart, RIM’s revenue from emerging markets increased from $1.69 billion to $2.33 billion, while it declined or at most gained slightly in other markets.

According to a Bloomberg report citing IDC estimates, Apple accounted for only 2.6% of India’s smartphone shipments in the quarter ended June 30, trailing RIM’s 15%, Samsung’s 21% and Nokia’s (NYSE:NOK) 46%. ^[1] RIM scores above Apple in emerging markets like India mainly on pricing front, and hence Apple’s cheaper version of iPhone could really hurt RIM’s fortunes. Our $26 price estimate for RIM’s stock is about 25% above market price.

See our complete analysis for RIM stock here

RIM Has Faced Substantial Volatility in Recent Months

Shareholders are increasingly getting frustrated with RIM’s management as its stock has taken a beating of around 65% since the beginning of the year. RIM’s stock volatility increased during the first half of last week as the stock jumped due to a speculative report that activist investor Carl Icahn had taken a stake in RIM (see Rumored Icahn Stake in RIM Fuels Takeover, Asset Sale Speculation). If this speculation is true, Icahn could push for a board seat and press the company to consider a sale.

The stock shed these gains in the latter part of the week after Amazon (NASDAQ:AMZN) launched its Kindle Fire tablet for $199 as investors felt that RIM’s PlayBook could suffer, there was no confirmation on Icahn’s stake and Apple’s iPhone announcement drew nearer. (see Non-iPad Tablets Have Most to Lose from Kindle Fire).

In a recent we note we highlighted that Amazon can afford to charge less because it will make up the difference by selling books, movies and popular television shows through Amazon. The PlayBook tablet has a similar design as Kindle Fire, but it does not have the content to help offset any losses on the hardware.

Given Apple’s announcement tomorrow, we should see the stock trade in reverse. If the iPhone disappoints, the stock could get a small rally — thought if the iPhone impresses and there is mention of an emerging market strategy, we could see further pressure.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Apple Loses to RIM in India Smartphone Market, Bloomberg, October 3rd, 2011 [↩]