RIMM: Apple I-phone introduction pressures to the downside.

Apple reveals a long-waited iPhone during MacWorld Show in San Francisco today. iPhone's launch was rumored to be delayed; however, Steve Job made sure today that it was a false rumor. iPhone looks fantastic with 3.5 inch crystal clear screen with extremely thin side profile. iPhone is much more than a phone, endowed with Apple's IPod function, internet browser capability, email function as well as the basic PC capability. It will be truly wanted device once the price will fall within a year or two. Initially iPhone will be priced for $499 for 4 GB version and $599 for 8 Gb version. Apple looks pretty well positioned to benefit from its product entry into phone and digital media market. I am bullish on Apple's long term prospect.

While Apple was busy racking up impressive gain today (up by more than 8% or $7 and a change), RIMM shares were busy falling. RIMM shares shed nearly 8% or $11 and a change. Leading to precipitous fall, RIMM shares continued to defy the gravity and have risen to all time high level. However, as I have maintained in my previous messages, I am skeptical of RIMM's long term business prospect.

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Investors are expecting the company's new product Pearl will help the company to capture a lion share of consumer smart phone market while growing its enterprise business with little competitive threat. Today's apple jump into the consumer smart phone market shows that RIMM's market place is becoming increasingly crowded. RIMM is facing Apple iPhone (selling in June from Cingular) in the high end market. From lower end segment, the competitions are stiff from HP, LG, Palm, Samsung, Motorola, and Nokia. You have noticed Motorola has announced the earning shortfall last week, which have pounded its share price to the downside. Motorola is facing stiff pricing pressure from Nokia who is leveraging on manufacturing prowess to push the unit price lower to capture additional market share. Nokia's such business plan does not only impact Motorola but entire smart phone industry, including RIMM. I also don't see emotional appeal with RIMM's Pearl as I would with Apple iPhone. Consequently, consumers may not remain as loyal to RIMM as some investors are anticipating. I believe that RIMM's PE multiple is simply too high which is competing in consumer segment with numerous number of fierce competitions. Consumer product business rarely yield high margin and as RIMM emphasizes more and more consumer related business, its overall net profit margin is bound to fall drastically. As such, PE of 25 is more appropriate value rather than current one that exceeds 50. Despite the EPS growth that may exceed $4.5 for next fiscal year, shrinking multiple may cap the share price value around $110 and I believe that RIMM is currently a good short candidate. I continue to recommend shorting the stock above $135 level with the target price at $95 a share.

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