5 Things RIM's Earnings Tell Us About The Economy

On Thursday, Research In Motion (RIMM) reports earnings amid a huge amount of uncertainty. That's because during the same quarter the company launched its high-end touch screen BlackBerry Storm to great fanfare, RIM also issued a rare earnings warning.

From the Dec. 2 press release:

"Initial sales of new products have been very positive and we believe we have the strongest smartphone portfolio in the industry by far, however product launch timing, general economic conditions and foreign exchange volatility have tempered our results in the third quarter," said co-CEO Jim Balsillie, who cut earnings and revenue forecasts. Now, RIM sees revenue between $2.75 billion and $2.78 billion, well below earlier forecasts $2.95-$3.10 billion for the quarter ending Nov. 29. Earnings forecasts were slashed from 89-97 cents to 81-83 cents.

RIM's struggle is emblematic of the difficult dynamic in the market right now. Basically, the question is: Can good companies with new products in growing markets manage to fend off the ongoing recession?

Analysts are scrambling to figure out an answer. What they're saying ahead of the earnings call is instructive on how the company and the rest of the economy is actually faring.

1. It's rough out there, and not just for smartphones.

Citigroup, which cut its handset industry outlook this week, says: "For 2009, we now expect total handset industry units to contract 13% compared to consensus estimate of -6.6% and our prior estimated decline of 6%. The primary driver of our reduced view is lower replacement rates in both developed and developing markets, though we note the impact is significantly greater from developed markets."

2. Which means overseas is tough too.

Also from Citi: "While subscriber growth remains relatively strong in markets such as China and India, we believe this relative bright spot for the industry could also come under pressure, though we are not making any changes on this front as yet." Other analysts say sales in Western Europe look challenging for RIM as well.

3. The recession question: Can new product hotness trump frugality?

Doubtful. CIBC World Markets initiated coverage of RIM with a $45 price target on Dec. 11, and sounded cautious. "We believe smartphone growth will be muted due to the economic slowdown as consumers and enterprises defer spending and delay device upgrades. These trends will limit RIM's F2010 EPS growth." As such, Apple investors should also take note.

4. It's good to have a moat.

RIM's consumer offerings got all the attention this year, but its core business customers provide some stability. CIBC analysts say RIM's strong enterprise market share (above 75 percent) will stay there, despite challenges from the likes of Apple, for the next 12-18 months because "IT departments in general are not in a position to increase spending to deploy new platforms." Unfortunately, it's not clear existing business customers will be upgrading their handsets with the same frequency, especially in the fragile financial sector, which is about 10-12 percent of RIM's enterprise business.

5. The future is cloudy.

Which brings us to RIM's future...which is really tough to read. To sum up, Reuters on Wednesday quoted Genuity Capital Markets Deepak Chopra, saying the fourth quarter will be "the toughest quarter in some time to gauge, given the uncertainty of the new year in both the enterprise and consumer segments, versus RIM's new product lineup." For investors who've already watched RIM shares plummet more than 64 percent this year, that sort of uncertainty can't be comforting.