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Neutral on BlackBerry

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As of Apr 10, we maintain our Neutral recommendation on Research in Motion Limited , as the company’s bottom line surpassed the Zacks Consensus Estimate but the top line missed the same, in the recently concluded quarter.

Why Remains Neutral?

Research In Motion launched its much-awaited BB10 OS-based Z10 touch screen smartphones while the new BB10 OS-based Q10 smartphone (includes both touch and physical keyboard options) is already in the pipeline. The company has also generated a whopping order of 1 million handsets from one of its established carrier partners.

The new device supports more than 100,000 apps and is based on a new user-friendly platform called QNX software or BB10 operating system, thereby offering strong resistance against the popular iOS and Android operating system.

Moreover, Research In Motion with its dedicated subscriber base of approximately 76 million coupled with a strong cash position and a debt-free balance sheet, will tend to act as tailwinds for the company going forward.

On the downside, we believe that Research in Motion’s plan to increase its marketing expenditure associated with the launch of BB10 devices will tend to thwart pressure on the company’s margin in the upcoming quarters.

Moreover, we are also concerned about the company’s recent decision to change the business model of its high-margin services fees segment. As per the new structure, the company will benefit from subscribers who opt for services like greater security while the other customers will generate little or no service revenue.

Furthermore, BBRY is facing stiff competition from the other low-cost smartphone manufacturers, which we believe will continue to hurt profitability going forward.

Currently, Research in Motion has a Zacks Rank #2 (Buy).

Related Sector Stocks Outlook

Other stocks in the telecom industry include Nokia (NOK - Free Report) , MetroPCS Communications, Inc. and Verizon Communication Inc. (VZ - Free Report) . All three stocks currently hold a Zacks Rank #3 (Hold).

Research In Motion announced that effective January 30, 2013, the company would operate around the world under the name BlackBerry. From February 4, 2013, the company’s ticker symbol for trading has been changed from “RIMM” to “BBRY” on NASDAQ. The legal name of the company has not changed, for which the approval of the official change by shareholders will be sought at the company's Annual General Meeting later in 2013. During the time, the company will do business as BlackBerry.

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