Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) reports Q1 earnings next Friday and Deutsche Bank analyst, Brian Modoff is out with a preview. Many investors will be focused on BB10 units, given its recent launch and the company’s viability directly related to its success or failure. Modoff has done a number of checks since the launch of the platform, and the results have largely been mixed, if not slightly worse. However, he feels that the company could have done well in a few geographies and that could help them surprise with a strong BB10 unit number. Moreover, the long tail of service revenues could hold up better than expected, further cushioning margins. However, over the longer term Modoff sees a number of challenges Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) management needs to overcome. As a result he maintains his Hold rating and our cautious, longer term outlook.
Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) Developing markets once a place of growth, could prove difficult in the future
India, Indonesia, South Africa, Nigeria and Venezuela used to be amongst the countries Blackberry once counted on for growth. While we have not done checks on all of these countries, our surveys indicate that Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) is struggling in a few. Blackberry’s answer for emerging markets is the Q5, the inexpensive sibling of the Q10; however, we think there could be challenges here with app development and BOM cost. Given the screen ratio difference between the Q10/5 and that of the Z10, app developers will need to tweak existing BB10 apps in order for them to be included on these handsets.
Additionally, it is our belief that the BB10 platform requires a dual core processor to perform well, putting the Q5 at a cost-disadvantage from the start. All of this means that current BB7 hold-outs waiting to convert may not have much to look forward to.
Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB): More trouble in the UK?
Our checks have repeatedly come back negative from these geographies. On top of this, the Managing Director for the UK abruptly left the company this week. Certainly, this could be an aberrant action; however, put together with our checks it does not indicate the progress we had hoped to see. We are sticking with our conservative estimate of 2.5 mln BB10 units for the quarter; this compares to the street at 3 mln units.
Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB): Maintain Hold rating and price target
Our TP is DCF based using 11% discount rate and 3% growth rate, consistent with the industry’s longer-term average growth rate. Upside risks include the potential for Rim’s new product, the Playbook, to outpace our expectations.
Also, better than expected consumer adoption of Rim’s existing handset product line could increase sales above our projections. Downside risks include lower-than-expected demand for Rim’s handsets and a decline in their highly profitable services revenues.
