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What Will Keep RIMM Busy in the Coming Months

 November 29, 2012 04:29 PM

(By Mani) Research In Motion, Inc. (NASDAQ:RIMM) (TSE:RIM) was up more than 6 percent after Goldman Sachs upgraded its rating on the BlackBerry maker to "buy" from "neutral".

Here are a few catalysts and developments that are expected to impact the shares over the next six months.

RIM is expected to launch its BlackBerry 10 (BB10) on Jan.30, 2013. For the first time in years, BB10 will not be competing with a new version of the Samsung Galaxy or Apple iPhone upon launch. RIMM is planning a global launch at over 50 carriers simultaneously.

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"It can be expected that carriers will be more willing to promote Blackberry's two new phones (touch and QWERTY), and improved face time can only be a positive," CIBC analyst Todd Coupland said in a client note.

RIMM will be launching an integrated global marketing campaign. New Chief Marketing Operator Frank Boulben has a wealth of experience marketing mobile devices in Europe, and his goals are to keep subscribers from leaving as contracts expire, win market share back from competitors, and have the 70 percent of the market that does not own a smartphone to look at purchasing a BlackBerry.

"Thorsten Heins (CEO) understands RIM has to make an impact prior to launch and that the problem is global in nature," the analyst said.

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The BB10 phones will launch with about 100,000 apps. While this compares to over 700,000 each for Google's Android and iPhone and 150,000 for Windows Phone. The app count should increase overtime as Windows Phone 7 launched with 1,600 apps in 2010 and the iPhone launched with 500 in 2007.

The goal for BB10 is to have the top 200 to 400 apps available per country, as popularity varies by region. Porting apps developed for iOS and Android written in C or C++ is fairly straight forward and well supported by Blackberry, and out of the gate, BB10 will support 26 languages.

"At the end of the day, the same criticisms lobbed at Microsoft Windows Phone for its extreme lack of apps will not take place to nearly the same extent with BB10," Coupland noted.

Investors need to consider a couple issues regarding services. The first is the profile and likely pressure on the monthly fees coming from existing subscribers. The second is what services fees can be expected from BB10.

"What we do know is that RIM plans to lower monthly fees to attract International subscribers. We also know that within BB10 initially an incremental Windows-based server will be required. By Blackberry World of 2013, RIM plans to merge BES 5 and BES10 which will be supported on the same server," Coupland wrote.

Currently carriers pay RIM, on average, an estimated $6 and $3 per month for its BlackBerry Enterprise Server (BES) or BlackBerry Internet Service (BIS) respectively. Carriers have more recently been pushing back on this fee, feeling the costs associated with RIM's Network Operating Center (NOC), compression and security did not justify the fees.

RIM has acknowledged that this service fee may not be able to continue at historical rates. BB10 will be using ActiveSync rather than the NOC for email, similar to how the Playbook operates while continuing to offer compression and encryption.

"In order to continue to charge a fee for its services, Blackberry NOC will support BB7 and be targeting new verticals and services within BB10," the analyst said.

Meanwhile, investors have somewhat overlooked the user experience of Blackberry Balance combined with Blackberry Fusion and BES 5 into BES 10. RIM's current bring-your-own-device (BYOD) solution, Blackberry Mobile Fusion, was released in April and has seen strong reviews, but is playing catch-up from incumbents in the market for 5+ years including Good Technology, MobileIron and AirWatch.

All three competing solutions have had a difficult time keeping up with software and hardware updates, the latest being Android 4.2 and iPhone 5.

"RIM has a very good opportunity to transfer some of those organizations looking to leave a poor experience at Good Technology for another BYOD solution to turn to its new BES 10/Fusion/Balance solution with a more complete user experience," Coupland wrote.

Currently Blackberry Fusion costs $50 to $100 per phone per year running Blackberry phones. This high-margin fee from a base of potentially tens of millions would help offset to a large extent decreased BES ARPUs. By contract, BES network fees are about $72 or $6/month.

Meanwhile, RIM has lost a material amount of market share globally from 2009 until today, mainly from the gain in share from Android, which has moved from 53 percent in the third quarter of 2011 to 72 percent globally in 2012. This rate of growth can not continue. The loss in share has not slowed over the last year as Blackberry users have either switched to alternate systems or have been anticipating BB10 devices or QNX phones.

It is now becoming more obvious to carriers and consumers that there are niches in the market where only another brand can take full advantage of this.

If RIM is able to grow its market share from 5 percent to 6 percent, this would increase EPS to over $1.50. Our current forecast calls for a 5 percent market share. We forecast a gross margin on smartphones of 20 percent," Coupland added.


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