by Caroline Gabriel, ReThink Wireless
The financial analysts remain on tenterhooks to see whether further warnings will emanate from the handset majors, following Sony Ericsson’s recent forecast of a weaker than expected first quarter. Amid all the uncertainty, there is rising negativity on more niche players like RIM. And analysts are also playing their favourite game of ‘spot the acquisition’, with their attention always focused on Palm which is now, reportedly, a target for Dell.
Having failed in its most recent attempt to enter the smartphone market, apparently because carriers did not see any differentiation in the prototype handsets, Dell might look for an acquisition to improve its offering. It cannot ignore the sector altogether, given that its PC rivals Acer and Hewlett-Packard are extending their activities, and the market is seeing notebooks and high end phones converge in terms of usage and channels to market.
Shaw Wu, an analyst at Kaufman Bros, published a research note this week saying Dell should make up for its smartphone design shortcomings by acquiring Palm, gaining an established brand and user base, and the groundbreaking Pre/WebOS combination, at a time when the device maker is struggling to survive the hiatus period as it waits for the Pre to ship. Dell would then bring its procurement strengths and its own channels and ecosystem to the Pre, and Palm’s existing Windows range. However, Palm’s value is rising as the presumed shipment of the Pre gets closer.
In a speech in Tokyo on Tuesday, CEO Michael Dell said: “It is true that we are exploring smaller screen devices…. For the last three years, we have integrated 3G radios into our notebooks. We already have agreements with many mobile carriers around netbook devices, so it wouldn’t be unreasonable to expect that we would have smaller mobile internet devices or smartphones in the future.”
Wu was also one of the analysts growing increasingly cautious about RIM. He has a ‘hold’ rating on the firm, citing worries about the recent declines in margins based on the cost of launching Bold and Storm, “We would like to see some stabilization in its operating margin before getting constructive on the shares,” Wu said in a research note.
And Ehud Gelblum of JPMorgan Chase cut RIM’s rating from ‘overweight, or buy’, to ‘underweight’, the equivalent of a sell call. He wrote: “RIM is already operating close to its peak earnings power” as higher volumes will be offset by price declines and rising costs. “With enterprise net adds falling victim to rising levels of unemployment, this places the burden of growth solely on the consumer side where we believe replacement rates should decline with the overall handset market,” he added.