RIM Faces Hard Road Ahead: Analysts

RIM faces a hard fight for increased revenue and BlackBerry market share, according to analysts. RIM reported declining revenues in its last earnings call.

Research In Motion's executives are intent on selling a story of a company in transition. Sure, the BlackBerry maker faces significant competition from the likes of Apple's iPhone and Google Android, both of which are making substantial inroads into the business space that's served as RIM's traditional stronghold. But RIM's upcoming QNX "superphones," and a revamped PlayBook tablet, are supposed to strengthen its product portfolio and bottom line.

During its Sept. 15 earnings call, RIM reported revenues of $4.2 billion for the second quarter of fiscal 2012, a 15 percent decline from the $4.9 billion it earned during the previous quarter. The company shipped some 10.6 million BlackBerry smartphones and around 200,000 BlackBerry-branded PlayBook tablets during that period. RIM acknowledged that demand has slowed for older BlackBerry models, yet insisted that the new devices running BlackBerry 7 OS are selling strongly in their first few weeks of release.

RIM's quarterly revenues also represented a 10-percent decline from the year-ago quarter, when it made $4.6 billion. BlackBerry's subscriber base grew around 40 percent year-over-year, to more than 70 million users.

RIM co-CEO Mike Lazaridis told media and analysts listening to the earnings call that sales of the PlayBook were "below where we'd like it to be." However, he suggested that the tablet would "ultimately be successful in a market that's in its infancy." A major software update for the tablet, which will reportedly include native email, is due at an unspecified date after October's BlackBerry DevCon conference.

But a handful of analysts see a much harder road ahead for RIM.

"Our checks indicate slowing sell-through of new OS 7 handsets, and we believe a new low-cost iPhone and low-end Android phones will pressure RIM in the mid-range and low-end, respectively," analyst Peter Misek wrote in a co-authored research note for Jefferies & Co.

"Management did not reiterate an early 2012 QNX handset launch and implied that OS 7 QNX would coexist for some time," he added. "Prototypes of QNX handsets and a Playbook 2.0 software update that will include native email/calendar should both be available in coming months, but no precise timetable was given."

Others see RIM as facing some fierce competition from Apple and Google.

"While RIM management remains bullish on its prospects for the Playbook and new BlackBerry 7 smartphones, we maintain our more cautious view as we believe RIM is underestimating the increasingly competitive smartphone environment," T. Michael Walkley and Matthew Ramsay wrote in a co-authored Sept. 16 research note for Canaccord Genuity.

RIM's lack of a "competitive ecosystem," they wrote, is "contributing to gross margin pressure for its hardware products, and we anticipate further margin pressure in F2013."

Still other analysts embraced RIM's more positive view of its prospects.

"Given already muted expectations for Research In Motion as well as the consumer end-market overall, we believe the potential downside to revenue in C3Q11 related to Research In Motion is in the 1 percent to 3 percent range," Brian Alexander and Nabil Hanano, analysts for Raymond James & Associates, wrote in a Sept. 15 research note. "That said, we see a potential for a similar degree of upside in the subsequent quarter, and therefore believe the Research In Motion's results and guidance are, on balance, in-line with our expectations."

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