Road ahead turns rough for RIM as Morgan Stanley downgrades the BlackBerry-maker

August 21, 2010 11:48 AM EDT

Morgan Stanley placed little hope in RIM's future, downgraded BlackBerry maker to sell on Friday, and shares tanked 4 percent.

Morgan Stanley analyst Ehud Gelblum justified the downgrade saying there exists "mounting evidence that RIM could lose market share faster than we had been modeling." He forecasted RIM's share of the global smartphone market will fall to 13.1percent by 2012, down from a previous estimate of 16 percent.

He citied growing threat of security issues rising from India and Middle East nations, competition from Android, the possibility of other smartphones integrating with corporate e-mail networks and a staid response to BlackBerry torch as primary reasons.

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BlackBerry is under pressure to modulate its OS so that application developers can use its OS to populate its application store which sported only 8,000 applications compared to Apple's 250,000. The number of applications and an OS platform's popularity among apps developers is a key element for a smartphone's success.

BlackBerry's core strength lies in its e-mail architecture which offers complex encryption resulting in better security. But several governments' demand that RIM loosen its security standards can dilute its core strength.

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Also with cloud-computing, corporates will be able to plug any smartphone with their e-mail architecture, which could make RIM's strategy redundant.

BlackBerry's proprietary OS and hardware structure is limiting its foray into the smartphone segment. As it attempts to model its hardware around its OS - which has no strong support for multi-media functions - it may end up making e-mail centric phones.

RIM needs to take a much more holistic approach to the market which is flooded with Android-based phones that are built around gaming, videos, and online TV platforms.

It needs other sources of revenue apart from its hot-stream being online ads-based revenue, for which, it would have to widen its scale by becoming more open OS. Probably moving to Android may change its fortunes.

This article is copyrighted by International Business Times, the business news leader