Evercore: Cautious On BB10 Potential

Shares of Research In Motion (RIMM) ended the day up 3.5% and were gaining ground in after-hours trading as well.

Some investors and analysts are confident about the firm�s upcoming release of the BlackBerry10 (due out in late January), and a potential turnaround for the company, although earlier today the firm lost a patent licensing case against Nokia (NOK).

Yet Evercore Partners� Mark McKechnie is urging caution. Today he reiterated his Equal Weight rating and $8 target price on the shares, noting that optimism may be too soon, as the firm faces an uphill battle as a the number three operating system.

McKechnie sees one million BB10s being shipped in the February quarter. Read highlights from his note and his adjusted earnings estimates below:

Adjusting estimates to reflect ~2 weeks of BBX shipments in February quarter. We have adjusted our Q4 FY13 (Feb) estimates to reflect BBX shipments (a touch device soon followed by a QWERTY) following the expected January 30th launch event. Our EPS goes to ($0.30) from ($0.35) and sales to $2.7B from $2.5B to reflect 1M BBX phones shipped in the February quarter at a $250 ASP and 15% gross margins. This is offset by a decline in our Bold and Curve forecast to result in higher units (7.6M vs. 6.9M prev) and ASPs ($210 vs. $202) but lower corporate gross margins (30.1% vs. 31.1%) due to a higher mix of hardware.

FY14 remains largely unchanged at ($0.45) on $10.4B versus our previous ($0.50) on $10B. We have published a more detailed model which includes 8.5M BBX devices, 13.1M Bolds (we expect cannibalization), 8.3M curves and 600K Playbooks. This results in 30.4M units for FY14 (unchanged) but at a higher average ASP ($205 vs. $193 prev) and lower gross margins on the increased hardware mix. Our Services forecast is unchanged at $3.7B based on 84M subs (flat) at a $3.76 monthly ARPU.

BBX devices require an IT upgrade to BES 10. Our checks suggest that BBX devices will require a deployment of the new BES10 server release, either on an additional BES server �Box� or on a virtual server. Thus to support existing BB7 users, IT managers will keep their existing BES5.0x server but would need to deploy a separate BES10 server for BBX.

One positive � BES10 will come with support for Android and iOS. This is important but seems late. RIMM will offer its Blackberry Fusion Mobile Device Management (�MDM) platform as part of BES10 to allow IT support for broad BYOD support including iOS and Android. Our industry checks indicate limited support (no surprise) from Samsung and/or Apple for this feature.

RIMM is making it hard for open MDM/BYOD players to support BBX. Our checks suggest limited support from RIMM for open MDM platforms (Airwatch, Mobile Iron, Good, Zenprise, etc.) to manage BBX devices on their BYOD platforms. This is a surprise to us as it would limit BBX sales to just IT departments with BES10 deployed. Thus while RIMM�s BES servers are now open, its BBX handsets remain proprietary.