GMP Research previews touchscreen Blackberry
Our man Ray Sharma (wireless analyst at GMP Securities) has been deep in the stacks at the United States Patent Office. The following material is what he turned up regarding a pair of new Blackberries. Sounds cool and all, but he isn’t excited enough to bump his targets or forecasts. Sharma hasn’t been calling it a buy for some time (see “GMP tackles currency impact on wireless sector; drops most target prices“, October 1-07), mind you, and with the stock sitting where it is he might continue to be right if the momentum guys continue to sell their winners in the lead-up to year end. How else can one explain why the stock has peeled off $20 over the course of the past few weeks.
RIM Co-CEO Jim Balsillie is undeterred, of course, and plowed his way through 14 inches on snow on Sunday to take in the Celtics/Raptors game. He might even have been allowed a smile as a fan in section 318 won a Blackberry 8700-series GPS version from Rogers. But now we know why our favourite CEO was smiling. The 8700 might be new to this NBA fan, but Balsillie et al have more up their sleeves for 2008:
“Q3 AND NEXT-GEN DEVICE PREVIEW
RIM (RIM:TSX) will report Q3/F08 (ending November) financials after the market close on Thursday December 20th. Our estimates are $1.61 billion in revenue, $0.60 EPS and net subscriber additions of 1.65 million versus consensus estimates for the quarter are $1.65 billion and $0.62. RIM’s exceptionally strong product cycles (notably CDMA World Phone, CDMA Pearl, Curve) should drive results towards the upper end of the guidance range ($1.60-$1.67 billion in revenue, $0.59-$0.63 in EPS and 1.65 million in net subscriber additions). The focus of this preview is our take on the next two generation of RIM device platforms. This is consistent with our views that product cycles will increasingly drive RIM’s near term financial results. We look to 3GSM Barcelona in February as a possible early release date for either or both of the previewed devices.
We believe that the next two generation BlackBerry devices will offer some interesting hardware
enhancements that are positioned to target two markets; the touchscreen and feature phone segment of the handset market.
The oft rumored RIM touchscreen device has lofty prospects (dubbed the 9000 series online in many chat forums). Our vision of how the device will be positioned does not differ significantly from street expectations from a feature perspective but does differ materially in form factor.
We believe that RIM holds significant respect for the tactile response that the physical keyboard provides. We believe that the screen will possibly include a tactile response mechanism akin to the Nintendo Wii controller. We also believe that the device will have differing hard key positions as well as programmable keys. The exhibit [we reviewed is] from USPTO application 2007/0133788 which is entitled “Handheld Electronic Device with Reconfigurable Keypad”. When reviewing the patent details we were especially interested in RIM’s retractable keypad concept. The touchscreen patent description further explains a fliptop feature to quickly access the screen interface.
We believe that the new touchscreen BlackBerry will be positioned at the high end of devices with a $450-$500 carrier per unit price. The device will feature a half VGA (roughly equivalent to an iPhone) that will be written on a new generation operating system. The rewrite of the OS will feature multithreading capability, a key feature to using several applications at the same time. Our early views on this device is high intrigue. The retractable keypad concept is a bold design move with high risks. Apple along with lesser known touch devices like the HTC Touch and LG Prada are quickly showing that a $10 billion plus market category exists for touchscreen handsets (20 million units in 2008 at $500 ASP).
This is likely the fastest growing segment of the smartphone category and RIM’s entry with strength in enterprise as well as providing a keyboard option would be interesting if the engineering is successful.
The exhibit [we reviewed] is from USPTO application 7,109,973 which is entitled “Mobile Device with Rotatable Keyboard.”. In the patent application RIM describes “previous attempts to integrate both a telephone keypad and a QWERTY keyboard in a mobile device have either made the QWERTY keyboard too cramped for use, or the width of the keyboard too big for the normal phone market”. The rotating keyboard has two different orientations which allow a user to switch back and forth between full QWERTY text input and a traditional phone keypad.We believe that this device will be positioned as a successor to the SureType Pearl device. The product will target the candybar phone segment but will allow for more ergonomic text input for messaging. We expect the device to be priced at similar levels to the Pearl at $300-350 per unit to the carrier depending on volumes. Our early view on this device is cautious bullishness. The premise of a rotating keyboard that accomplishes the needs of a slim handset with the versatility of a full keyboard is interesting. Other handset OEMs, such as Nokia, have introduced similar concepts. We would reserve additional judgement until we can better appreciate the overall design element of the device, a filing that RIM will make public closer to the actual announcement of commercial availability (this filing shows schematic diagrams of the form factor with the precise design which RIM also patents).
We currently apply 30x on our F10 EPS of $3.50 to arrive at our $105 share target. This is an
aggressive valuation approach even when ignoring handset comps and comparing RIM to peers that share similar brand, growth, and product characteristics such as Apple and Google who trade at 37x and 32x F08 P/E. For RIM to maintain growth rates the company is also dependent on its success in coming key product cycles. Maintain HOLD.”
(disclosure – I own RIM)