RIMM Price War Ahead

Burton writes in a research note that he think RIMM is a great company, but that its margins are going to squeezed by increasing competition and a need for RIMM to invest more to expand. “Some of this has been recognized by the deterioration of the stock,” he writes, “but we believe there is still significant downside to current earnings estimates.”

Burton says the handset sector “has always been brutal where distribution is sometimes as important as the quality of ones product portfolio, but it is also facing a new wave of competition in its core market in QWERTY smartphones.” He notes that RIMM faces multiple new entrants - he cites Apple (AAPL), HTC, Nokia’s (NOK) new E75, and Huawei, and there are obviously many others. “We have been hearing that carriers are asking for price reductions across all vendors including those at the very high end of the value scale,” he writes.

Meanwhile, Burton also thinks that corporate layoffs and cost-cutting could impact subscriber growth and replacement demand. “We think that even RIMM with its multiple product cycles underway will have trouble growing in this environment,” he writes. “To combat this decreased spending environment we believe that RIMM will be forced into making more price concessions.

Burton expects RIMM to earn $3.24 a share in the February 2009 fiscal year, with $2.79 a share in FY 2010, and $3.05 in 2011; he is way below the Street consensus, which sees $3.38 for ‘09, and $3.61 for FY 2010.

RIMM today is off $1.16, or 2.8%, to $40.30

Barron’s Online : RIMM: ThinkEquity Says Sell; Sees Price War Ahead: