Nokia's troubles benefit RIMM

I wrote in a Jan. 16 article that RIMM's outlook in 2011 is very bright.  Indeed, two very positive analyst reports emerged last week.  On Thursday, Credit Suisse analyst Kulbinder Garcha wrote that troubles at Nokia could result in RIMM shipping 5 million additional smartphones each in 2011 and 2012.  Garcha estimated FY 2012 EPS of US$8.10, and maintained his Outperform rating and $85 target price.

Meanwhile, On Friday, Morgan Stanley analyst Ehud Gelblum upgraded RIMM from Underweight to Equal Weight.  He sees the PlayBook adding $0.40 to EPS even with modest sales estimates of 2.1 million this year and 5.6 million next year.  Gelblum sees RIMM benefiting from the Dalvik virtual machine.  He also raised his device shipment, EPS and revenue estimates.  FY 2012 EPS was raised from $6.29 to $7.23.

Nokia's troubles benefit RIMM

Nokia has been losing market share rapidly.  Despite remaining as the number 1 smartphone maker in the world, its market share has declined from 38% in Q4 2009 to 28% in Q4 2010 according to IDC.  As a result, the company is expected to announce this Friday that it will adopt either Android or WP 7.

Nokia is RIMM's biggest competitior in international markets in Europe and Asia.  Thus, with Nokia having to spend 12 to 18 moves to produce phones on Android or WP 7, RIMM would benefit by taking taking market share from Nokia.

With today's closing price of US$63.60, Garcha's FY 2012 EPS of $8.10 means that RIMM is currently trading at 7.85 times forward earnings.  At a more reasonable 14 times multiple, RIMM's price would be at $113.4.  RIMM shares are trading at 78.3% below that price, making the shares a clear bargain.