Research In Motion Limited (USA) (NASDAQ:RIMM) (TSE:RIM) has received a price boost from RBC Capital Markets ahead of the BlackBerry 10 launch. There are high expectations for the company’s next-gen smartphone, but this has not come without varied criticism. The media have questioned the company’s ability to challenge the status quo, which pits Apple Inc. (NASDAQ:AAPL)’s iOS and Google Inc (NASDAQ:GOOG)’s Android as the dominant forces in the industry.
However, according to a note sent to investors by RBC Capital Markets, the sentiments towards the launch of BlackBerry 10 (BB10) are advancing positively and this could lead to an upside in the stock. The analysts ticked their price target on Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) from $11 to $19 ahead of the launch, citing a surge in positive sentiments from media and analysts. The firm also said they expected the company to offer the product at a subsidized price of $149 per unit (on contract) as numerous carriers would promote the device, ensuring some initial unit success.
The analysts also noted that the company is likely to launch a larger screen model and mid-tier devices to follow the initial Touch and Qwerty devices. Canada and the U.K are expected to dominate pre-orders for the device. However, Research In Motion is still a long way short of achieving normalized earnings, the analysts set their sites on FY2015. Moreover, the analysts pointed to a possible downside if sell-though data is not favorable or if returns are not high, which could tramp the stock to $12 per share within the next 12 months.
In the report, the analysts wrote, “Our forecast calls for Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) to ship 500k BB10 units in the Feb-quarter and 10M in CY13. Heavy subsidies and promotions may be required to sustain initially positive trends. Approximately 10–20M of RIM’s 79M installed base may upgrade to BB10 over time, although migration to low-cost Android is likely to continue. BB10, which does not entail mandatory service fees, will increase RIM’s mix of hardware revenue over time. Sustainable hardware margins have been elusive for many vendors”.
The Canada-based company is tipped to have at least 70,000 apps at launch, less than 10 percent of what (Apple and Google Android have, estimated at 800,000). Nonetheless, the company can still marvel on the fact that about 1,600 North America-based enterprises are already testing the BB10.
The device is an improvements of previous versions, BBM video calling, enhanced voice recognition, BlackBerry Hub, and work/personal separation. The device’s browser has also gained positive reviews, but the timing of the launch is what remains questionable as Samsung is expected to refresh its Galaxy S smartphones in April.
The analysts concluded, “The true measure of success will be not just units, but also sustainable profitability, and competition is cut-throat with Windows convinced they will be the third mobile OS vendor. Heavy upfront spending may be required for the launch, and we expect initially $500+ ASP and 10–15% gross margins on BB10 before volumes help margins”.
Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) closed on Tuesday at $17.90 per share.
