Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)'s Stock Price Climbed Due To Blackberry 10 Anticipation, but it can not continue to hold a high trading price, according to analysts at TD Securities.
Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)’s stock climbed by 46 percent in November, due to the Blackberry 10 product cycle anticipation and from relative weakness of Apple Inc. (NASDAQ:AAPL), according to analysts from TD Securities.
Scott Penner & Doug Taylor, both CFA & analyst at TD Securities, believe that Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)’s Blackberry 10 will not be able to address the mid-tier and lower-tier bastions, not until the latter part of F2014.
They cited that innovation in high-end devices, which is the initial target market of the company, is increasingly incremental. According to the analysts, it would be difficult for the Blackberry 10 to attract customers away from Google Inc (NASDAQ:GOOG)’s Android OS and Apple Inc. (NASDAQ:AAPL)’s iOS. In addition, Penner & Doug cited that speculations regarding the introduction of the Samsung Galaxy S4 in January might affect customers' intention to purchase the Blackberry 10.
Furthermore, the Blackberry 10 will also face strong competition from Nokia Corporation (NYSE:NOK), as the company recently announced its new line of Asha feature phones, such as the Asha 205 with dual-SIM QWERTY and a dedicated Facebook Inc (NASDAQ:FB) button, and the Asha 206 with WhatsApp.
In their research note to investors, Penner & Doug wrote, “We believe that sustainable profit is dependent on a high-margin recurring adjunct to the low-margin (currently negative) device business. We remained concerned that the services-infrastructure access-ARPU decline will accelerate in F2014 (we model down 29% after 17% in F2013E) and have yet to see how this segment will reinvent itself.”
According to the analysts, they view Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) being unprofitable in F2014. They explained that their target price for the stock at $12 per share is based on sum-of-the-parts valuation-Q4/13E cash ($4.00/share), the services DCF ($3.00) and patent value ($5.00).
Penner & Doug expects the Canadian smartphone manufacturer to ship approximately 2 million units of Blackberry 10 in 4Q. They estimated the shipment for Blackberry 10 would be around 40% to 50% next year. They assumed that the initial price offering for the Blackberry 10 ASP would be $450 and by F2014 the price would become $424 after the introduction of other devices.
According to them, “Our overall shipment model of 37.1mm units for F2014 is above current consensus (32.7mm), ad our revised ASP model (overall F2014 ASP of $288) compares with the consensus of $235. We model channel fill at 2mm units Q4/13 and Q1/14 (YTD shipment include a 5.7mm reduction of channel inventories).