BlackBerry 10 said to be overhyped, RIM’s comeback chances remain slim

BlackBerry 10 Sales Estimates

Research In Motion (RIMM) will unveil its first two BlackBerry 10 smartphones — the BlackBerry Z10 and BlackBerry X10 — next week during a press conference in New York City. Both smartphones have leaked extensively and we know just about everything there is to know about the new OS, and users are still excited. That is a very, very good sign for RIM as it attempts to stage a comeback. Not everyone is convinced RIM can thrive in the current smartphone market though, and Citigroup analyst Jim Suva cast doubt on RIM’s chances in a recent note to clients.

“Over the past few months, management has been actively promoting the benefits of their redesigned operating system across several countries and has been drumming up developer support for the new OS,” Suva wrote. “We expect the company to distribute samples of the hardware devices (2 models expected all touch & QWERTY keyboard) at the launch for demo/review purposes. We are also not surprised by recent carrier announcements to support the new BB10 devices. We remind investors that carrier support is naturally expected given minimal risk on part of the carriers to support these devices.”

The analyst acknowledged that sentiment will likely improve ahead of next week’s unveiling and even ahead of initial device launches, but he suggests these will be short-term boosts. “We remind investors that actual sell through matters to determine the true financial impact that the new OS and hardware will have on the company’s financials, especially in an increasingly competitive environment,” Suva noted.

Another concern is RIM’s service revenue, which stands to take a serious hit under the vendor’s new model. “While minimal details were provided on this topic at the company’s last earnings call, we believe investors should not treat this item lightly as our estimate is that while services represent ~35% of total sales it importantly represents ~75% of gross profits this quarter and projected to be ~50% of total gross profits (as we believe services have a gross margin of 60-70%).”

Citigroup carries a Sell rating on RIM shares with a $6 price target.

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