TORONTO - Research In Motion Ltd. (TSX:RIM) shares were under pressure Monday as investors digested a Citigroup report that downgraded the company's stock to a "sell" rating and subsequently helped pull its stock down.
Citigroup Global Markets analyst Jim Suva said in a note that the BlackBerry maker is facing greater competition from other smartphone companies, including Motorola (NYSE:MOT) and Apple (NASDAQ:AAPL) and in response he dramatically slashed the company's target price.
"Simply put, there is an invasion of new phones, applications and competition," Suva wrote.
"The revolution of product and application service offerings is going to start to crack open the enterprise door and could pose a risk for Blackberry."
Suva downgraded the stock to a "sell" with a target of US$50 from a "buy" rating valued at $100. It's rare for analysts to leap to a "sell" rating without first downgrading the stock to "neutral."
The cut sent a chill through the markets, and knocked RIM's stock $3.67 lower to $60.15 on the Toronto Stock Exchange on Monday. The shares are off a 52-week high of $95, and a low of $44.23.
The company's stock has also been impacted by a broader downturn in stock markets that has stretched over the past week.
Suva said the Waterloo, Ont.-based company is about to contend with a rush of more attractive devices and applications from other companies, which already appears to be swaying the loyalty of some of its U.S. carriers. He believes that will put pressure on the company's growth potential in coming quarters.
"Verizon embracing Motorola's Droid phone as its hero product likely causes RIM's marketing spend to increase in 2010," he wrote.
"We expect to see this increase start in RIM's February quarter but not in this November quarter as the Verizon promotion shift has only just begun."
The Droid phone technology - more commonly known as Android - is based on an operating system developed by Google. Motorola unveils its new phone this week in the United States.
Duncan Stewart, director of research and analysis at DSam Consulting, said that it would be most concerning to RIM that a major carrier like Verizon is pairing with another phone developer.
"When the carriers get behind it, not only is that a good thing for Android, it's a real threat to RIM," he said.
"A lot of people are talking about Android."
Whether the chatter translates into sales numbers remains to be seen, but a massive promotional campaign from Verizon certainly won't hurt Android, and won't help RIM much either.
Executives have been trying to quell investor concerns in recent months that RIM is falling behind in the smart phone race.
The company, considered one of the jewels in Canada's tech crown, has delivered a few consecutive quarters of results that were short of analyst expectations.
In September, RIM, which keeps its books in U.S. dollars, reported that it earned US$475.6 million in the second quarter, down from $495.5 million a year earlier. Revenue rose 36.8 per cent to $3.53 billion.
At the time, executives said that carriers were maintaining a lower inventory level at their stores than in the past, which caused some analysts to conclude that RIM devices were starting to fall our of favour with some shoppers.
Stewart emphasizes that the battle should be put into context.
"RIM has been through this before; in the past people have predicted their demise," he said.
"I can certainly see RIM's growth slowing... but if you actually look at their numbers they're doing really well, their margins are holding in there."
"They certainly need to keep having hot phones and keep growing their business, even in the face of the iPhone and Android. If they can do that, their shares are going to get back up towards $100 again."