Gleacher downgraded Research In Motion (RIMM) (RIM.TO) to 'neutral' from 'buy,' saying it expects the company to lose share in the high-growth smart phone market as Apple and Android expand carriers and product breadth.
We believe the recent move captures near-term strength and we cannot justify material multiple expansion from here given our projection of slowing earnings growth over the next 2 years, analyst Mark McKechnie wrote in a note to clients.
The analyst said RIM is battling for the number 3 spot with Nokia, Windows7 and Palm.
McKechnie sees increased competition in 2011 as smart phones move to the mid-range, alternative solutions penetrate the enterprise, and RIM's bandwidth efficiency has not yet translated to the consumer.
For RIM, the analyst forecast 16 percent unit growth and 6% drop in average selling prices in fiscal 2012. This represents share loss of 243 basis points (bps) and out that 215 bps share is expected to Apple and the Android community of Motorola/Samsung/HTC as they bring out more QWERTY designs in the mid-range and move aggressively into Europe, Asia and Latin America from the US.
We think competition will accelerate in CY11 as Samsung/Motorola/HTC broaden product offerings and #3 contenders Windows 7 and Nokia catch up and expand into Europe, Asia and Latin America, the analyst said.
McKechnie, however, expects 2-3 solid quarters of sell-through for RIM as a percentage of its approximate 55 million subscriber base upgrades to the Torch and future Blackberry 6.0 platforms.
The analyst raised his third quarter earnings forecast to $1.69 a share on revenue of $5.5 billion, which is at the upper-end of RIMM's guidance and above consensus of $1.63 a share on $5.4 billion.
RIM is forecasting earnings of $1.62 to $1.70 a share on revenue of $5.30 billion to $5.55 billion. Wall Street expects earnings of $1.64 a share on revenue of $5.38 billion for the third quarter, according to analysts polled by Thomson Reuters.
The analyst also raised its price target to $70 from $60 as he expects a strong third quarter as well as outlook.
But $70 is not enough for new money given competitive threats and potential execution risk on product launches, McKechnie added.
Shares of Waterloo, Ontario-based RIM closed Tuesday's regular trading session at $62.12 on Nasdaq. On the Toronto Stock Exchange, they ended Tuesday's trading at C$62.72.