Still Neutral on Research In Motion

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We reaffirm our long-term Neutral recommendation on Research In Motion Ltd. (RIMM). The beleaguered BlackBerry handset manufacturer posted a better than expected third quarter of fiscal 2013. Both the top and the bottom line outpaced the Zacks Consensus Estimates. In the previous quarter, Research In Motion improved its sagging gross margin and its cash position solidified for the third quarter in a row.

We believe a real turnaround of Research In Motion will take more time than previously expected as we remain uncertain about when the company will achieve profitability. Change in revenue model of high-margin Services segment and a drop in BlackBerry’s global subscriber’s base are other near term concerns. However,the market is eagerly waiting for the company’s next-generation Blackberry 10-based devices which are slated for launch onJanuary 30, 2013.

Research In Motion is facing threats from an ever increasing competitive landscape, a stagnant product portfolio, and an unfavorable product mix. The launch of Apple Inc.’s (AAPL) iPhone came as a big blow to the company. The situation aggravated once Google Inc. (GOOG) launched its Android software and several handset manufacturers adopted this operating system. We believe management has so far failed to do proper research which can place the company’s motion forward.

Meanwhile, Research In Motion is currently on the verge of launching its QMX software-based smartphones, popularly known as BlackBerry 10. Management has high hopes on this operating system as it is believed to be different from the existing products in the market with respect to navigation, software integration, speed and convenience of gesture reorganization, touch screen, and unique security. BlackBerry 10-based smartphones are scheduled to launch on January 30, 2013.

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