Wall Street has already been down on Research In Motion, but one analyst says the negative sentiment enveloping the BlackBerry maker may not be sufficient yet.
The latest concern about RIM is its margins. Sterne Agee analyst Shaw Wu, in a downgrade of the company's stock rating to neutral from buy, said the company's margins faces pressure from the need to remain competitive in the face of lower-priced devices that are benefiting from carrier subsidies. In addition, the freebies and likely discounts RIM will have to provide to angry business customers after last month'swill also hurt its bottom line.
"The key reason we are doing so is because we believe forward consensus estimates are likely too high in light of heightened competition that will likely put pressure on margins," Wu said in a research notes to clients today.
RIM's stock has already cratered this year, falling 70 percent amid fears that the BlackBerry can no longer compete against the likes of Apple's iPhone and Google's Android phones. In addition, its first stab at the tablet market, the PlayBook, was an unmitigated disaster. While Wall Street analysts may have taken their estimates for profits and revenue down, Wu said it may not be enough.
The new flagship Bold 9900 has done well, but Wu said other new BlackBerry phones haven't fared as well. RIM has had to take down the prices of all of its BlackBerrys, particularly the overpriced $300 Bold, in an effort to remain competitive, Wu added. Retailers, meanwhile, offered the PlayBook at $199 as part of a Black Friday sale and a larger initiative to sell the tablet.
Wu said that other Android phones from the likes of HTC and Samsung have benefited from larger subsidies and attention from the carriers. On the tablet front, Amazon appears to be setting a new benchmark with its $200 Kindle Fire.
In addition, RIM said last month after the outage that it would be providing a month of free technical support to enterprise customers. While a nice gesture of goodwill, Wu said the freebie will also cut into margins and hurt service revenue. In addition, he suspects many customers will demand further discounts to stick with RIM.
Not all is negative. Wu said RIM continues to have intrinsic value as a potential acquisition target due to its 70 million subscribers, push network, software, and patent portfolio. He said the patents--which are heavily related to smartphone, tablet and push technology--could be worth $2.5 billion to $4 billion.
RIM shares recently rose 2.4 percent to $16.42.