After months of hype and momentum leading into Research In Motion Ltd.'s crucial BlackBerry 10 launch on Wednesday, the company's shares continue to sink as analysts urge caution on unexpected delays to availability in the United States.
RIM CEO Thorsten Heins showed off two new smartphones at a glitzy launch event in New York, revealing the full-touch BlackBerry Z10 smartphone – available in Canada starting Feb. 5 – and the BlackBerry Q10 with a physical keyboard that will likely be out in April. Early reviews of the Z10 have been extremely positive.
RIM shares fell sharply during Mr. Heins's time on stage, ending Wednesday down about 12 per cent. And although there appeared to be lineups in London, shares continued to fall in pre-market action and dropped another 6.8 per cent on Thursday as analysts began to revise the number of devices they thought RIM could sell in the current quarter, given the devices won't launch in the U.S. until March. Other analysts, though, noted that this seemed to be a classic "buy on speculation and sell on news" situation and that the stock drop on a relatively minor hiccup might represent a buying opportunity for some investors.
"There are several things we like about BlackBerry 10 and its new devices, yet several things are missing and the timing of the U.S. launch means we're reducing our initial (calendar year 2013) unit expectations," RBC Dominion Securities analysts Mark Sue and Paul Treiber wrote in a note to clients.
However, referring to RIM's long-running growth in developing nations and the success of larger screened devices like Samsung Electronics Co. Ltd.'s 5.5-inch Note device, the two analysts added that "BlackBerry's base is eroding, so time is of the essence and lower-priced devices for emerging markets and a larger screen model must also be in the line-up in order to target a broader audience."
From analysts, there is cautious optimism about RIM: The new BlackBerry seems sleek and puts them back in the game, they say, but the industry has gotten increasingly competitive during the new BlackBerrys' frequent delays – and there is worry that a lot of people may have already made up their minds about BlackBerry and moved on, despite the new models' improved user experience.
Industry observers had seemed more upbeat leading into the launch as momentum built and it looked like RIM would hit modest sales expectations relatively easily. Since the launch event contained little in the way of big strategic or material surprises, many focused on the delay to U.S. sales as the one thing of note that was revealed during a launch event that showcased the new BlackBerrys' improved software.
Peter Misek of Jefferies & Co., who expected a March release in the U.S., said the launch of the new BlackBerry 10 phones "gets them back in the game," and suggested buying on the weakness ahead of raised shipment estimates for the coming quarters. National Bank Financial analysts Kris Thompson, however, urged more caution, saying the launch offered little in the way of "material secrets" beyond the buzz-producing appointment of singer Alicia Keys as RIM's new so-called Global Creative Director.
"Shipment expectations have become pretty frothy lately leading into this product launch," Mr. Thompson wrote. "The stock climbed on expectations and fell on launch delays. We would avoid the stock until $10 and until we've had time to assess the product."
Mr. Heins, on stage at the launch event, blamed the delay in U.S. availability on the length of testing that large U.S. carriers undergo before they launch devices. Mr. Misek said he knew this to be the case. A source, though, told The Globe that AT&T was only able to dedicate a large advertising window to the new BlackBerrys in March.
There was also some criticism about the focus of RIM's comeback effort. Clearly, RIM needs to regain market share in the U.S., but the phone is delayed – and might be priced too high for some of the emerging market countries where RIM's brand is still strong and sales are still growing. Although Mr. Heins has promised a variety of new devices running the BlackBerry 10 software over the next year, analysts still zeroed in on some of the obvious disconnects.
"Our main concern with RIM at this time is the disconnect between its strength in emerging markets for lower-end smartphone devices, and its focus on a new operating system that caters to a higher end base that may have once used a BlackBerry but are migrating to other platforms," writes BGC Financial LP analyst Colin Gillis. "We see the company getting a degree of traction in this higher end market, but doubt there is a return to its former glory."
Meanwhile, Tom Astle at Byron Capital Markets notes the new BlackBerry has received extremely positive reviews from influential technology reviewers in the U.S. who were previously very bearish on the BlackBerry's chances. David Pogue, the influential reviewer for the New York Times, began his review with the words "I'm sorry. I was wrong." The reviewer then noted the Z10 was "lovely, fast and efficient, bristling with fresh, useful ideas."
Mr. Astle says the devices seems to be doing well against what he calls an obviously negative bias in the U.S., but at the same time noted the competitive dynamics in the market are tough – and that it is still an open question whether consumers will begin walking into wireless retail stores and buying BlackBerrys again.
"We attended a well-executed, well-attended BB10 product launch... and other than a month slip in the U.S. availability of the device, we liked what we saw," Mr. Astle wrote in a note to clients. "Post the event, we are probably a little more cautious on the market uptake rate, but we would still use weakness as a buying opportunity. We continue to see this management team as strong on execution."
With a file from reporter Omar El Akkad