In a report published Monday, Morgan Stanley (NYSE:MS) analysts Ehud Gelblum, PhD, Kimberly Watkins, CFA, Jeremy David, CFA, and Stanley Kovler reiterated Research In Motion Limited (TSE:RIM) (NASDAQ:RIMM) at Underweight, citing bleak expectations on the company’s BlackBerry 10 Success. The analysts maintained that, despite the company’s recent surge in share price, the chances of BB10 becoming a third ecosystem in smartphone platforms are minimal.
In the report, Morgan Stanley (NYSE:MS) wrote, “Shares of Research In Motion Limited (TSE:RIM) (NASDAQ:RIMM) are up 53 percent over the last month vs. a 1.5 percent decline for the NASDAQ, but we continue to rate the stock Underweight, as we believe the chance of BB10 becoming a viable 3rd mobile OS remain low. We believe shares remain volatile as noise of strategic options and hype around BB10 continue”.
The report notes that some of the features in BB10 are very innovative, but still do not guarantee success as a third mobile platform. The report cited the example of the reaction to Palm’s WebOS when we saw it at CES in 2009. The analysts are also of the opinion that BB10 is too late, and subs continue to shift to competitive devices. A global mobile workforce survey was published in mid October, which indicated that only 5 percent of respondents expected to upgrade to BlackBerry, which ranked below Microsoft Corporation (NASDAQ:MSFT) Windows Phone at 8 percent.
They also noted that the mix shift to BB7 in Q3 was the driving force behind the company’s relatively healthy results for the period, expressing that the impact was temporary. The toughening competitive environment is likely to throttle Research In Motion Limited (TSE:RIM) (NASDAQ:RIMM)’s fundamentals according to the report.
Services revenue is expected to hit a ditch beginning in the November quarter and decline further during the subsequent quarters, as BB10 does not use RIM’s Network Operations Center (NOC) in the same way prior versions did, reducing service Average Revenue Per Unit (ARPU). The analysts wrote, “[We] believe services business is RIM’s most important asset, and value services at $12 per share in a near-term wind-down scenario, but $0 per share in our $7 price target, as it supports the loss-making devices business”.
Here, are some interesting statistics from the October Survey.
Blackberry usage is down 6 percent according to the survey conducted by iPass. Only 26 percent of mobile workers use BlackBerry, down from 32% in 2011.
Blackberry attracts the least of percentages in terms of the number of developers willing to develop Applications based on its platform. Only 9 percent of the developers expressed interest in developing BlackBerry Apps, as compared to other major competitors who attracted more than 50 percent.
Chief investment officers of various enterprises are skeptical of spending on Research In Motion Limited (TSE:RIM) (NASDAQ:RIMM) devices over the next twelve months. Less than 10 percent felt that spending is likely to increase over the next twelve months. More than 90 percent were of the opinion that the spending would either remain flat (>30%), or Decrease 40%, while 20 percent do not use BB devices.