We are downgrading our recommendation on Research In Motion Ltd., to Underperform from Neutral on the back of continued somber financial results coupled with a reduced outlook.
Research In Motion has consistently struggled ever since Apple Inc’s (AAPL - Free Report) iPhone hit the market. The situation worsened further when Google Inc. launched its Android software, which was adopted by several handset manufacturers. Presently, Research In Motion’s BlackBerry operating system has become obsolete and continues to lose market share. Moreover, the recent launch of Apple’siPhone 4S has further hampered its market share.
The company’s global smartphone market share fell 12% in the last quarter compared with 19% in the year-ago quarter. The situation is worst in the US, where revenues declined 7% year over year.
Research In Motion is planning to launch its new QNX-based smartphones in the second half of the year. However, we believe that such a delay in product launch will further create pressure not only on their present market share but also on the average selling price (ASP).
In the mature North American market, Research In Motion has failed to compete with large and established competitors, while in the lucrative emerging markets, the company is facing cut-throat competition from the low-cost phone manufacturers of Taiwan, China and India. Moreover, availability of low-priced Android-based smartphones and iPhone in these emerging markets is a big threat for both enterprise and retail consumer segments.
Recently, the company launched the BlackBerry PlayBook OS 2.0 application for its tablets to improve its email functioning. However, we believe that the upgradation will not make a huge difference to its market share as the whole tablet market is dominated by the recently launched iPad 3. In the opening day alone, Apple sold a record 6 million iPads.
Moreover, Amazon.com Inc’s (AMZN - Free Report) low-priced Kindle tablets will dominate the low end market, hence leaving less opportunity for high priced PlayBook tablets to be a success.
Currently, Research In Motion Ltd. has a short-term Zacks #5 Rank (Sell rating).
Research In Motion Ltd., headquartered in Waterloo, Ontario (Canada), designs, manufactures, and sells wireless solutions to the mobile communications market.