RBC Dominion Securities is raising its price target for Research In Motion Ltd. ahead of the crucial launch of the smartphone maker's BlackBerry 10 devices, but warns that it is "far too early" to call the company's turnaround a success.
RBC analysts Mark Sue and Paul Treiber say they are hiking their price target from $11 to $19 because carriers around the world seem to be supporting the device, there is likely to be an attractive subsidized price of about $149 and there is a "diehard installed base" ready to upgrade to the new BlackBerry operating system.
They expect RIM to ship about 500,000 BlackBerry 10 phones during February, when the phones are likely to start selling, and about 10 million devices during the remainder of RIM's fiscal year. They expect to see some lower-priced BlackBerry 10 phones after the initial launch of a full touchscreen model, which is to be followed by the release of a new device with a physical keyboard.
At the same time, the smartphone industry is becoming increasingly competitive, they warn. RIM, which is going to make less money from the service side of its business going forward, is going to have to rely even more on hardware revenues at a time when hardware profit margins are falling for companies across the industry. The release of RIM's new enterprise software – BlackBerry Enterprise Service 10 – means RIM will soon have to go without the lucrative fees from carriers and businesses that have cushioned recent sales declines, though RIM will still recoup a per-device fee.
RIM is also going to have to spend millions of dollars on a sustained marketing campaign to make its phones stand out in a market crowded with other operating systems such as Microsoft Corp.'s Windows Phone and Google Inc.'s Android, and may have to suffer through heavy subsidies "to sustain initially positive trends," the two analysts write.
"The true measure of success will be not just units, but also sustainable profitability," they said in a research note on Wednesday, "and competition is cut-throat with Windows convinced they will be the third mobile OS vendor."
RIM, of course, has lost market share over the past two years to Apple Inc.'s iPhone and a variety of devices running Android, notably high-end phones from Samsung Electronics. Sales declines have eaten into RIM's financial position, and the company stopped providing guidance to analysts as its competitive situation worsened. Growth in emerging markets have kept RIM's overall user base hovering around 79 million users, but cheap handset makers deploying Android handsets have begun to eat into that area, as well. Beyond core corporate users – RIM says 90 per cent of Fortune 500 companies still use BlackBerrys – it is unclear what the consumer demand for RIM's new BlackBerrys will actually be, they write.
"Consumer and enterprise demand for BlackBerry 10 beyond diehard BlackBerry fans is unknown," Mr. Sue and Mr. Treiber write. "Over the last several years, RIM has lost significant share in the global smartphone market, which may be challenging to re-capture. RIM's enterprise users have been more resilient than consumers, but the trend toward bring-your-own device (BYOD) has opened up the market to iPhone and Android. Within emerging markets, Android is rapidly gaining share, with attractively priced entry-level devices."