Research In Motion Ltd (RIM) co-chief executive officer Jim Balsillie said the BlackBerry maker is reducing supply costs as surging growth provides him with leverage to press for bargains during the recession.
“Being a strong growth company in a challenging environment makes you an important customer,” Balsillie said in an interview at his office in Waterloo, Ontario.
That is probably helping RIM to elicit better terms from the companies that make equipment for its BlackBerry phones, he said.
PHOTO: AP
Shrinking expenses, coupled with fresh sources of revenue such as the App World application store, may help the device maker bolster profit margins and thrive in the worst global recession since World War II. RIM has offered discounts on the Storm and other new models to attract customers reluctant to spend as they wait out the slowdown.
This month, RIM said gross margin, the percentage of sales left after production costs, will expand this quarter, signaling the company is absorbing the impact of introductory offers. Before that, the stock had dropped about 12 percent over two months as investors fretted about the effect discounts would have on margins, following RIM’s February prediction that fourth-quarter profit would come in at the low end of targets.
“Their volumes are increasing by leaps and bounds, which has to increase their purchasing power,” said Nirav Parikh, senior vice president and equity analyst at TCW Group Inc in Los Angeles. “The margin step-down has already occurred and the stock has been punished duly.”
TCW has about US$110 billion in assets under management, including RIM shares.
RIM rose US$2.27, or 3.7 percent, to US$64.18 in NASDAQ Stock Market trading on Thursday Apple Inc., maker of the rival iPhone, climbed US$3.25 to US$119.57.
RIM’s five biggest suppliers account for almost 90 percent of its production costs, according to data from relationship-mapping software Connexiti. Electronics manufacturer Elcoteq SE makes up a third of RIM’s costs and relies on the company for 20 percent of annual sales.
“Markets are getting more difficult and everyone is trying to minimize costs,” Elcoteq spokesman Carsten Barth said. “We obviously always try to help our customers because if they are successful, we are successful.”
He declined to comment specifically on RIM.
Elcoteq, based in Luxembourg, is joined by Jabil Circuit Inc, an electronics maker, and by chipmakers Marvell Technology Group Ltd, Multi-Fineline Electronix Inc and Qualcomm Inc, according to Connexiti. Anaheim, California-based Multi-Fineline, which makes flexible circuit boards for RIM, also has experienced “pricing pressure” and is pushing back on its own suppliers, spokesman Lasse Glassen said.
“Our job is to continually offer our customers globally competitive pricing,” said Beth Walters, a spokeswoman for St Petersburg, Florida-based Jabil.
She declined to comment on the company’s relationship with RIM.
Marvell spokeswoman Diane Vanasse declined to comment, as did Qualcomm spokeswoman Emily Kilpatrick.
RIM and rivals such as Cupertino, California-based Apple are vying for subscribers as the pool of spending dwindles. Sales growth of smartphones are expected to slow to 3.4 percent this year, about one-sixth last year’s pace, with the overall market likely to drop 8.3 percent, research firm IDC said.
“BlackBerry adoption continues to be strong in light of tough macroeconomic headwinds,” said Shaw Wu, an analyst at Kaufman Bros LP in San Francisco, who rates the stock “hold.”
That shows the appeal of RIM’s e-mail technology, he said.
Sales in the three months through February jumped 84 percent from a year earlier, bolstered by premium models like the Storm and the Bold. Those should help fatten margins as the relative costs of developing and introducing those phones shrinks, Balsillie said.
Keeping profit margins high will be difficult given how fickle consumers constantly expect new devices, said Jonathan Goldberg, an analyst at Deutsche Bank Securities Inc.
“To keep consumers upgrading they have to stay on the Hit Parade or innovation treadmill indefinitely and that may prove to be beyond RIM’s abilities,” he said. “We see these issues creating margin pressure over time.”
San Francisco-based Goldberg rates the stock “hold.”
RIM expects to generate more cash through App World, which opened last week, and now offers about 1,000 programs. Application developers get 80 percent of the royalty from every download, while RIM will split the remaining 20 percent with its carrier partners.
SECURITY: As China is ‘reshaping’ Hong Kong’s population, Taiwan must raise the eligibility threshold for applications from Hong Kongers, Chiu Chui-cheng said When Hong Kong and Macau citizens apply for residency in Taiwan, it would be under a new category that includes a “national security observation period,” Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) said yesterday. President William Lai (賴清德) on March 13 announced 17 strategies to counter China’s aggression toward Taiwan, including incorporating national security considerations into the review process for residency applications from Hong Kong and Macau citizens. The situation in Hong Kong is constantly changing, Chiu said to media yesterday on the sidelines of the Taipei Technology Run hosted by the Taipei Neihu Technology Park Development Association. With
CARROT AND STICK: While unrelenting in its military threats, China attracted nearly 40,000 Taiwanese to over 400 business events last year Nearly 40,000 Taiwanese last year joined industry events in China, such as conferences and trade fairs, supported by the Chinese government, a study showed yesterday, as Beijing ramps up a charm offensive toward Taipei alongside military pressure. China has long taken a carrot-and-stick approach to Taiwan, threatening it with the prospect of military action while reaching out to those it believes are amenable to Beijing’s point of view. Taiwanese security officials are wary of what they see as Beijing’s influence campaigns to sway public opinion after Taipei and Beijing gradually resumed travel links halted by the COVID-19 pandemic, but the scale of
A US Marine Corps regiment equipped with Naval Strike Missiles (NSM) is set to participate in the upcoming Balikatan 25 exercise in the Luzon Strait, marking the system’s first-ever deployment in the Philippines. US and Philippine officials have separately confirmed that the Navy Marine Expeditionary Ship Interdiction System (NMESIS) — the mobile launch platform for the Naval Strike Missile — would take part in the joint exercise. The missiles are being deployed to “a strategic first island chain chokepoint” in the waters between Taiwan proper and the Philippines, US-based Naval News reported. “The Luzon Strait and Bashi Channel represent a critical access
Pope Francis is be laid to rest on Saturday after lying in state for three days in St Peter’s Basilica, where the faithful are expected to flock to pay their respects to history’s first Latin American pontiff. The cardinals met yesterday in the Vatican’s synod hall to chart the next steps before a conclave begins to choose Francis’ successor, as condolences poured in from around the world. According to current norms, the conclave must begin between May 5 and 10. The cardinals set the funeral for Saturday at 10am in St Peter’s Square, to be celebrated by the dean of the College