Research In Motion Should Adopt 3rd Party OS, Ecosystem: Analyst

Research In Motion (NASDAQ: RIMM), which is struggling to gain ground in the battle against Apple, Inc. (NASDAQ: AAPL) and Android, should resort to a third-party operating system and ecosystem to get back to winning ways.

We believe RIM's integrated strategy is a losing proposition and it will need to separate the platform from devices and adopt a more successful 3rd party OS and ecosystem in order to salvage its future, Wedbush Securities analyst Scott Sutherland wrote in a note to clients.

The BlackBerry smartphone maker said on Friday it will record a charge in the third quarter related to the inventory valuation of its BlackBerry PlayBook tablets. The company also said it expects to sell less BlackBerry smartphones in the fourth quarter than in the third quarter, and no longer expects to meet its earnings guidance for fiscal year 2012 that called for adjusted earnings of $5.25 to $6.00 a share.

RIM said it has a high level of BlackBerry PlayBook inventory and believes an increase in promotional activity is required to drive sell-through to end customers. RIM is betting heavily on PlayBook, while the Caandian company also plans to launch new smartphones next year, using the same QNX-based operating system used in the tablet.

However, PlayBook is losing to competing devices like market leader Apple's iPad and other Android tablets like Samsung Galaxy Tab. In addition, RIM lacks an ecosystem and is still struggling to convince developers to build apps for PlayBook and its upcoming smartphones. On the other hand, iPhone and Android devices already boast huge libraries of applications.

The analyst said, unfortunately, RIM's management appears committed to the current strategy, which would require additional investment.

We remain cautious as RIM appears stubbornly stuck to its current and likely losing strategy of an integrated device, OS, and ecosystem, in what will likely prove to be a futile attempt to catch up to Apple. Ultimately, we believe RIM needs a meaningful change in strategy to unlock shareholder value, said Sutherland, who has a neutral rating on the stock.

Shares of the Waterloo, Ontario-based company closed Friday's regular trading session at $16.77. Sutherland cut his price target on the stock to $18 from $26.