Wednesday, May 19, 2010

RIMM cracks list of top five handset makers for the first time ever

A new report today from Gartner shows that Research in Motion (RIMM) cracked the top five list in mobile phone market share for the first time ever by placing 4th on the list. RIMM shipped 10.6 million phones to increase its market share to 3.4% in Q1 2010, from 2.7% in Q1 2009. Number 1 on the list is Nokia, with 35%, second place went to Samsung 20.6%, while LG finished third with 8.6%.

Mobile phones are widely used today. What is more important is the smartphone market, since sales of smartphones are increasing rapidly, while the sale of feature phones (cell phones that lack the features of smartphones) are in decline. In fact, a report shows that smart phone sales could equal feature phone sales in 2011. With today's report, the big question in this lucrative industry becomes: Which handset company's shares are the best to buy?

First of all, we can cross Nokia, Samsung and LG off the list. This is because all three companies lack popular smartphones. In addition, both Nokia and LG are seeing their market share decrease because of this (from 36.2% to 35% and 9.9% to 8.6% respectively).

In terms of RIMM, its shares closed today at $64.79, with a P/E ratio of 15.00. Now, Apple's (AAPL.Q) market share has been increasing at a faster rate than RIMM, from 1.5% in Q1 2009 to 2.7% Q1 2010. However, Apple is starting from a lower market share. More importantly, while Apple represents a faster growth rate, the shares are significantly more expensive, closing at a P/E of 24.42 today (versus 15.00 for RIMM). As for Google (GOOG), the market share of its mobile phones did not make Gartner's list. However, the market share of its operating system, Android, increased rapidly from 1.6% in Q1 2009 to 9.6% in Q1 2010. While this is an impressive feat, it is important to note that Google does not make any money from its Android operating system, since it does not charge phone makers such as HTC to use the Android.

All in all, Apple's mobile phone market and Google's Android operating system are both increasing market share faster than RIMM. However, with RIMM's earnings continue to increase at a rate of 20% per year, and with a P/E of 15.00, it is a much better buy than Apple. As for Google, while the growth in market share of the Android appears to outpace both RIMM and Apple, it is irrelevant since Google does not receive any revenue from selling/giving Android to handset-makers such as HTC.

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