RIM: Time for the squeeze in India?

RIM's problems are well known, but the company could really have issues if the Curve loses its edge in emerging markets like India.

The parade of analysts throwing in the towel on Research in Motion is getting longer as Wall Street frets about the company's holiday sales and low-priced Android devices in developed markets. A larger concern may be RIM's threats emerging in India.

JMP Securities analyst Alex Gauna downgraded RIM to a market underperform and gave shares of the company a price target of$12. Shares were at $17.50 or so in early trading.

Gauna's arguments go like this:

  • RIM will lose the low-end of the smartphone market just like it did the high end. Gauna focused a lot in a research note on the entry-level Curve. The Curve---and afterthought to many techies today---is huge in emerging markets such as India. In India, the Curve is facing lower costs iPhone 3GS devices and Android phones. If the Curve goes so does RIM's volume.
  • The high-end of the smartphone market is crushing the BlackBerry. Gauna said:

Blackberry is completely outclassed at the high end of the smartphone market, where its Torch and Bold lines remain buggy and greatly lagging in App support. Over the weekend the iPhone 4S launched in India and although we question how well the device will do with an unsubsidized price point at above $800; carriers Bharti Airtel and Aircel have the iPhone 4S as the most prominently featured device on their websites with Blackberry poorly positioned.

  • BBX convergence makes sense, but RIM can't deliver. Gauna said that RIM's plan to support Android and cook up a new OS make sense. The problem is that Gauna sees little from RIM to indicate it can deliver. "If our skepticism proves accurate, the net result will be unit volume and average selling price compression," he said.

It's clear that the number of analysts betting against RIM outnumber supporters, but some are upbeat. Sameet Kanade, an analyst at Northern Securities, argued that RIM can regain momentum. Kanade's theory rides on RIM's services revenue, which remains solid. In addition, RIM will be able to manage other devices via its BlackBerry Enterprise Server. Sure devices are a problem for RIM, but there are other opportunities.

Kanade's argument is in the minority, but worth noting. As RIM's earnings approach in December, the negativity meter is likely to go off the charts.

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