Research In Motion Regains Footing

Some difference 3 months can make. Research In Motion (RIMM) stock 3 months ago was bearing the brunt of sell-off at the behest of disappointing performance and guidance, dipping from the mid $80s to the high $60s per share. The stock had mostly held water of late, sliding slightly to the low $60s but was in a position to change all that with another earnings report.

With the increasing competition from Apple's (AAPL) iPhone, Palm's (PALM) Pre and heightened marketing given to several smart-phones running Google's (GOOG) Android software RIM had to deliver, on all fronts, and it has. Blowing past all expected metrics is leading shares of RIM higher by 11% early in after hours trade.

The lines: Revenue of $3.92Billion vs $3.78Billion estimated; Income of $1.10/share vs $1.04/share estimated; Subscribers at 4.4Million vs 4.1Million estimated. RIM also shipped 10.1Million units during the quarter, including a milestone generating 75Millionth.

Seems the analyst talk of RIM's mighty fall via the dual-pronged iPhone/Android sword will have to wait for the time being as the folks from Waterloo can pop the bubbly for at least another quarter as going into the Christmas season the guidance RIM provided was very strong. Revenue of $4.3Billion vs $4.11Billion and EPS of $1.27/share vs $1.12.

So, with RIM so firmly positioned, what's wrong with the company and why isn't it a must own in the growing smart-phone industry? Two main reasons: Interfacing and Extensibility.

In interface design RIM is not even close to the same league as Apple, let alone the various flavours of Android that are appearing in the market-place. The company has such a culture entrenched in the corporate world that functionality for the consumer has always seemed like an after-thought with the current incarnations of the BlackBerry OS. This was most evident in both versions of the touch screen device Storm that the company debuted to scolding and muted critical response.

In regards to extensibility its hard to call RIM's platform a leader in any sense of the world. Its BlackBerry App World platform is another after-thought and in the days of the highly successful iPhone/iPod Touch AppStore, being an afterthought is just about being dead in the water. While Android is still nowhere near Apple's 100,000 applications catalog, it is getting there with over 16,000 available for various handsets. In this race RIM is already well-behind.

But there is a silver lining, the company makes very good looking hardware, for the most part, and is a staple in the corporate world, which is a business that isn't going anywhere and will grow with the rise of smart-phones world wise. Prospects continue to look good, and if the engineers can get their software act together for a new version of the BlackBerry OS, it really can be a 3 pronged fight in the mobile space for the decade to come, and that kind of potential will have analysts and investors eager to jump on board.

Disclosure: Author does not hold any position in RIMM, is long AAPL, GOOG

Drop In Jobless Claims Fails To Ignite Market

In what by most is seen as good news the job market showcased another data point in its long march towards stability. Jobless claims fell by about 20,000 to 530,000, which was slightly better than the 550,000 expected by economists and analysts.

Another rather important metric, continuous jobless claims (people making claims for longer than a week) fell by 123,000 to 6.14Million. These data points are giving economists positive signals that the job market is getting better, but cautious optimism aside, it also shows how much further there is to go.

The major benchmarks in the US opened slightly positive on the news but have since turned negative with the Nasdaq leading with a 1% decline.

In other news, some technology companies might to ready to appear more attractive to investors as what some call the "Apple rule" has been reversed. The required method of subscription accounting when dealing with hardware and software sales, most notably put into practice by Apple (AAPL) with its iPhone, will no longer be so as part of Generally Accepted Accounting Principles. This change allows Apple to record Revenue and Profit from iPhone sales in real-time as opposed to being force to account for each unit sold over a 2 year period. Amazon (AMZN) uses the same method of accounting for its Kindle e-book reading device and Palm (PALM) had adopted the method for its flagship Pre smartphone.

Why Apple is most noted for this change is relatively simple, it moves a staggering amount of iPhone units, at high margins, fueling renewed growth rates. Under the new standards, Apple is expected to report profitability that is 35-40% higher than it is currently allowed to. Fundamentally, there should be no change to the value of the company, simply a change in the accounting books, but for many P/E based traders and quantitative computer P/E based models, Apple will appear more attractive under these ratios. Amazon, Palm and other companies dealing with this change will not have their metrics altered nearly as much as Apple is expected to.

Disclosure: Author owns AAPL

Can Motorola follow the Palm path?

In a bit of Deja Vu, the conscious feeling not the forgettable Denzel suspense film, Motorola (MOT) is attempting to pick its phone company off of the balance sheet floor with an attractive new handset. Investors have just seen this same story with PDA legend Palm (PALM), as it used hype from its Pre handset unveiled in January of this year to move the stock from $4 to $14 and save a business that was clearly heading in the wrong direction.

The battle in the smart phone marketplace is very heated, with entrenched competitors Apple (AAPL) and Research In Motion (RIMM) slowly gaining market share but gathering much of the mind share, and more importantly most of the profit margins. Recent stats show those two juggernauts grabbing just 3% of the overall cellphone market but an astounding 35% of all industry profits. And for good reason, the companies sell very expensive but heavily subsidized attractive smart phones.

Motorola, which has been in dire financial shape quarter after quarter for what can only be described as forever, hasn't had a hit in the cell phone space since its popular RAZR handset, and is desperately trying to compete in the profitable smart phone segment. By gutting through a lot of the company, and doing away with historically bad Motorola interfaces the company turned to Google's (GOOG) upstart Android platform for its resurgence.

Android, by all accounts is gaining significant traction since the first HTC handset launched nearly a near ago. The platform has been featured in 3 additional phones headed in the US thus far and rumors peg the number of Android handsets at 20 into 2010. This contrasts with the handful of RIM models available and the 2 current selling versions of Apple's iPhone. Motorola is betting with a lot of the industry that the free Android platform can eventually be as compelling and competitive in an industry feeling the need for consolidation in what is becoming an age of mobile applications. If your phone doesn't have applications available its simply not as good, and the beauty of Android, as far at Moto is concerned, is that it doesn't need to worry about pumping resources to create an application hub. The reach of Google is already doing just that, granted it is nowhere near the size of Apple's AppStore, but Android does boast the 2nd biggest mobile application catalogue. Nothing to scoff at.

Enter the Motorola Cliq, the world's first social phone, as the company claims. The phone is built on Android, but Moto's designers have layered an interface that directly ties in a user's Facebook, MySpace and Twitter contacts and status information. The social aspects of the phone are sure to resonate with a younger smart phone buying public and Motorola has shown it can indeed build something of higher quality. Will the phone be able to compete in the space? Sure, but will it gain any significant market share? At least one analyst seems to think so, as a note was published putting 4th quarter Cliq sales at about 750,000 or an estimated 5% of Moto cell sales. 5% may not seem that significant, but with a hefty subsidy, Motorola could start to see some real revenue from its new headlining handset. And after all, Moto essentially bet the company on Android less than a year ago, so we're guaranteed to see several handsets leveraging the new interface.

While specs are impressive, price will be a key differentiator for consumers. In the age of the $99 iPhone 3G and the higher capacity $199 iPhone 3GS, it is sheer lunacy for other players to think they can charge more and gain any sort of traction with consumers. Thus far though, Investors are jumping in and believing in the robot that will eventually have come to save Motorola from the brink. Shares are up 7% today and gained more than 10% since the device was officially announced. Here we go again?

Disclosure: Author owns AAPL, GOOG

Apple cuts Mac prices, unveils Software and new iPhone at WWDC

The yearly developer showcase that is Apple's (AAPL) Worldwide Developer Conference (WWDC) kicked off with a keynote, once again sans-Jobs, but was packed with several software and hardware announcements.

Consider Palm's (PALM) highly touted Pre smart phone sold well in its first weekend the landscape for telecom mind share had shifted away from Apple for at least a short while. Analysts early estimates point to sales of about 50,000 Pre devices in the first weekend for Palm, which compares to about 270,000 devices when the original iPhone went on sale and 1,000,000 units for the iPhone 3G. While it may be unfair to compare launches since Sprint is a much smaller carrier compared to AT&T, and the iPhone 3G launched in a multitude of countries, its the media that counts. Palm made a good sized dent during the Pre's announcement, sales will have to continue to deliver if it hopes to turn that dent into a crack.

But when Apple takes the stage for any event, competitors in each line of business must be anxcious, hoping to be able to breathe a sigh of relief as the rumors come and go with little to no surprises. At today's event, it seems every business Apple is in, it made headaches for its competitors.

The Computer Hardware business: Apple reduced pricing on virtually all of its machines, turning the well designed aluminum laptops into a family of MacBook Pro machines starting at $1199 for the 13 inch computer formally known as simply a MacBook. The slim MacBook Air also got a price cut and Apple kept the $999 price point on the previous generation white plastic MacBook. The only model in the line to keep only the MacBook name.

The Computer Software business: Mac OS X Snow Leopard, branded and versioned like a full OS upgrade, was priced like a going out of business sale. $29 for the next version of Apple's Operating System due in September, has got to make the folks at Microsoft (MSFT), who are rolling out Windows 7 a month later, a little bit edgy.

The Phone business: Apple, having repeatedly said, didn't want to leave a price umbrella for competitors has finally publicly brandished an iPhone on the world for $99. While unveiling a 'newer, better, faster, stronger' iPhone 3GS, sounds like a Porsche doesn't it, the company kept its $199/$299 pricing for the new models, setting the existing iPhone at the magic 99 figure. This puts tremendous pressure on the makers of Blackberries, and Androids, and especially the Pre, which is $199 after a $100 rebate.

Many hoped, Steve Jobs would make at least a minor show-stopping appearance, the rumor mill still has Apple's iconic CEO returning to work at the end of the month, which will put several analysts and many potential investors at ease. Apple's year-to-date run up of 69% has showed that Investors feel the company can survive without Steve or they are already sure he will return. However, the company still stands $60/share away from those gaudy 2007 highs, with a business models that combined are selling more devices than ever.

Disclosure: Author is long AAPL

Smartphone Wars to heat up this Summer

The new hotness, no not Twitter, but the smartphone, is gearing for an all hands on deck gadget war this year and beyond. While smartphones have been around for sometime, it was only until recently (read: iPhone) that momentum has picked up faster than Usain Bolt. With two main rivals now leading the charge, Research In Motion (RIM) and Apple (AAPL).

This isn't a 2 horse race however, nor will it be over soon. As RIM executive Jim Balsillie recently said on the company's conference call in baseball terms, the smartphone wars are somewhere in the 2nd inning. What may seem like an Apple and RIM race to win, certainly can be turned upside down with entrants from all of the world. Although smartphones account for less than a third of the phone market, they command nearly 90% of the media coverage and almost all of the growth. According to Mobile Advertising Network AdMob, smartphone share increased from 26% to 33% in the past 6 months. This growth trend seems likely to continue as popularity in these devices continue to gain and subsidies for the most popular devices reign in even the most worrisome economic consumer.

Although Nokia (NOK), may be the biggest phone maker in the world, its smartphones have yet to inspire consumer desires such as the iPhone from Apple or the Blackberry Bold from RIM. Although by sheer volume, Nokia with its range of models holds 3 of the top 5 most popular smartphones spots globally, trailing only the aforementioned iPhone. Trends are shaped by consumer decisions as well as the push from corporate entities, and as such none of these companies are standing still, nor can they afford to.

What's on the horizon then? An analyst at Barclays is reporting that Apple has doubled iPhone production in anticipation of new models coming in June (Link). Recent iPhone speculation has pointed to not one but two phone models expected out of Cupertino this time around, conveniently coinciding with the release of Mobile OS X software version 3.0 in June. When Apple reports results for the first calendar quarter of 2009 it will surely surpass 20Million unit sales for the iPhone, not too shabby in about a year an a half.

With the AppStore becoming a global phenomenon Apple is making it extremely tough for users to ever switch away from an iPhone. If you've spent hard earned money on applications to make your phone function exactly how you want it to and have the features you want, you'll of course be less tempted to switch to something else if it means losing those precious applications. When iTunes purchases only worked on iPods for all those years, it drove an upgrade cycle for the company like nothing the music industry had ever seen.

RIM, fresh off the release of a new Curve, the well-received Bold and the mixed touchscreen Storm, has had information leak out about 3 new devices codenamed Onyx, Driftwood and Magnum. This coming from a company that had shipped almost 8 million devices in its most recently announced quarterly results, sending shares higher by 20%. RIM is certainly hard at work, but its not an easy task convincing the general public the virtues of a Blackberry. Always the device of choice for the business user, as smartphones have become increasingly consumer-focused RIM had a tough balancing act to strive for. For the most part, judging by the results, RIM has done very well. Initial critical thrashing of the touchscreen Storm notwithstanding the device has been successful and further forays into iPhone touchscreen territory by RIM will likely be greatly improved. And not a soul can say negative things about the hardware RIM uses for its keyboards, they are always top-notch.

Palm (PALM) has somehow starting erasing its name from the gravestone it was surely destined to have after several quarters of significant losses. The driving force for the resurgence! A little device by the name of the Palm Pre. Wowing audiences earlier in the year with iPhone-like admiration, the Pre is set to launch in the US soon, followed by International markets later in the year. There still is much at stake for Palm, but the feedback thus far has been incredibly positive on the new device, and with the work put into Palm's WebOS platform the company, and consumers, expect a wide range of WebOS devices going forward.

Google's (GOOG) Android has had a rather slow start but will likely pick up steam in the latter parts of the year as not only a second handset from HTC, the company that produced the G1 for T-Mobile, is due as well as multiple devices from Samsung. With carriers in the US and abroad looking at, adopting, and testing Android, it seems only a matter of time before Google's vision of hundreds of Android phones becomes a reality. T-Mobile is even talking about launching Home phones and netbooks running Android, and a recent story about HP had the company confirming it will be testing Android for its netbooks. The free, open-source platform has proved resilient despite some questionable early roots, and as the platform stabilizes and is available on more handsets and in more incarnations consumers will increasingly see Google's web based products, and ads, within their mobile world.

Like Google, Micrsoft (MSFT) has only been providing software for smartphones, however all the momentum a bloated Windows Mobile has garnered in the past has seemingly been lost in the past year. With flashier devices like iPhones, Blackberrys, Androids and Pres being on consumer minds the battle remains uphill for Microsoft. A software overhaul is needed for Windows Mobile and it certainly doesn't help the company that it announced a visual overhaul (Version 6.5) but slated it for release at the end of this year, while a proper, better Windows Mobile 7 is scheduled to come sometime in 2010. Microsoft can't afford to wait much longer as Android gains momentum, and while the other most popular smartphones all run their own platforms.

All in all, consumers will have an abudance of choice in 2009 and beyond, and as their devices do more things they need, the world as we know it will change from the at-home/at-work Internet dominated era to the mobile/on-the-go Internet dominated era. The one constant is being connected and with each software platform making a better Internet experience each time around the debate surrounding Internet browsing is fading. The only way to get ahead in this game is to bring incredible new features (such as 3rd party applications) wrapped in elegant hardware that consumers feel inspired to purchase and use. While Apple and RIM are leading in that sense now, by the time this year's crop of devices are released we may just be nearing the bottom of the 4th.

Disclosure: Author owns AAPL, GOOG, owns long-term call options on MSFT

Dow slide continues in 5th straight session of losses

For a fifth consecutive day the Dow Jones Industrials posted negative returns leading their slide from the 9000 point mark early last week. The 600 point slide during the sell-off was caused by continued US economic concern, the weakening of the domestic job picture and the sustained struggles of banks and automakers.

News makers and headliners over the past week have been significantly negative as company quarterly losses and job cuts continue to rule the front pages. Alcoa (AA), one of the main culprits of the bearish trading tone, reporting a loss far wider than analysts expected along with a 35% decline in revenues. Whether in North America or across the world the story seems the same as Sony (SNE), the electronics giant is rumored to be looking at steep job cuts amidst a rumored loss of $1.1Billion for the year, a first in the history of the company.

Citigroup (C), a bank with its well-known fair share of troubles, has confirmed talks with Morgan Stanley (MS) to combine investment banking units. The troublesome news here for Citi is that just months ago the executive branch was adamant about not wanting to sell its brokerage unit Smith Barney. The supposed deal would net Citi group anywhere from $2.5Billion to $3Billion in gains and give Morgan Stanley 51% control over the combined brokerage partnership. It doesn't help either that estimates for the bank's quarterly loss have risen to as high as $10Billion and renewed talks of another capital infusion from the Federal Government will likely be needed.

On a counter-note, left for dead and unprofitable smart phone maker Palm (PALM) was the star of the show at the Consumer Electronics Show in Las Vegas, reviving hopes that the company can turn the corner as it announced a new platform and phone to Apple-like fanfare. The Palm Pre will be available later this year, sports an intuitive interface and sleek design, and has set web bloggers ablaze with its style and functionality. Traders have taken note as well, sending Palm shares almost 100% higher since the device was first revealed.

Disclosure: Author owns C

3rd Calendar Quarter Ends, Earnings Season Begins

As a tumultuous 3rd Calendar quarter comes to a close, market volatility grabbed most of the trading headlines as the markets felt the effects of the credit crisis and a Fed induced Rate Cut Rally.

What the end of the quarter brings is wave after wave of Corporate Earnings. The markets have seen earnings from the Financials coming over the last couple of weeks, highlighted by Goldman Sachs (GS) tremendous expectations beat. The first week of October is highlighted by a couple gadget/phone makers as Palm (PALM) reports Monday and Research In Motion (RIMM) reports Thursday. The two smart phone competitors have been going in opposite directions and Palm hopes its latest cheap device can put a dent in the momentum that's been grabbed by the BlackBerry and Apple's (AAPL) iPhone.

Overall the upcoming earnings week is fairly calm as a storm of earnings will come in the last three weeks of October.