RIM (RIMM) Blackberry: Cheap Products Get Expensive

RIM (RIMM) Blackberry handheld e-mail devices really do not cost much. Purchased with a wireless subscription plan they may go for as little as $200. Corporations love the product because it keeps their over-burdened employees available 24 hours a day. Since the device works in most countries around the world, no one can hide.

Because the Blackberry is such a paragon of productivity, it should be the last expense that most companies kill when money is tight. That made RIM’s forecast for upcoming quarters a sign of something more ominous than a drop in the company’s share price.

RIMM’s most recently reported quarter was outstanding. Earnings were up 72% to $486 million.

As RIMM looked ahead, it said costs would rise and damage future earnings. But, that is not what has begun to prey on the minds of investors. According to MarketWatch "During a conference call with analysts, RIM co-chief executive Jim Balsillie noted that while the traditional cell phone market is slowing, the market for smart phones is booming — growing at 58% a year in the U.S. alone."

Sustaining that pace in a recession would be a miracle.

IT departments at most companies are likely to cut small costs later than big ones. The Blackberry is a very small cost compared with database software, server farms, and scores of new PCs. RIM should hold its own.

Unfortunately, in a deep recession, there is no such thing as holding one’s own in business. Everything that can be cast out is cast out.

That even applies to cheap stuff like Blackberry handhelds. RIMM’s stock will trade at around $78 today, below is previous 52-week low and down from a period high of $148. The shares have not lost half of their value because expenses will be up a bit more than Wall St. forecast.

What worries investors is that, in a credit crisis, companies cannot afford much of anything, no matter how useful it may be.

Douglas A. McIntyre