Needham & Co. this morning initiated coverage on Palm and BlackBerry manufacturer, Research In Motion, noting both companies seem likely to take a bounce on strength of the iPhone effect.
Palm seems most exposed to risk, the analysts said, saying the company had "lost its way". Pointing out that Palm hasn’t introduced a major upgrade of its smartphones and the Palm operating system for almost five years, the analysts observe the company to be, "counting on a new operating system and a totally redesigned smartphone to restore its leadership role.
"Neither is likely to be introduced until late in the year. Even then, it’s an open question whether they’ll be successful. We’re initiating coverage with an under perform rating," Needham & Co. said. And the market for personal organisers is shrinking in favour of the smartphone.
The analysts also note the enterprise market could become more competitive with the entry of Apple, while in the consumer market, Palm will have to compete with the likes of Research in
Motion and Apple, which have the vision and resources to make continued headway in this market.
"It’s unlikely that Palm can match RIM or Apple on either dimension. In its favor, Palm’s other competitors are currently much weaker, in our opinion, because many, such as Motorola, Samsung and HTC, are saddled with the Windows Mobile operating system, a non-starter in the consumer world," the analysts explain.
Research In Motion (RIM) appears slightly less exposed to Apple’s entry to the smartphone market, the analysts explain.
"Research in Motion, the leader in wireless email services in the business market, has actually experienced far faster growth in the consumer market in recent quarters. However, we believe BlackBerry’s supercharged growth in this market could slow materially when far more versatile applications developed for the iPhone begin to appear in the second half of the year. We’re initiating co
verage with a hold rating," Needham & Co. said, while predicting the company will see healthy growth.
But the risk to all incumbents in the smartphone sector remains iPhone, with Google’s Android platform promising a new level of complexity and challenge.
"The competitive landscape in the consumer smartphone market was totally disrupted with Apple’s introduction of the iPhone in the summer of 2007. The iPhone is a game changer, weaving together a wide array of computer-like functions. It runs on the industrial strength and user friendly Mac OS X. It totally changes the concept and versatility of a smartphone."
"Given the choice between a BlackBerry and iPhone, we believe a material percentage of consumers will opt for the iPhone once exciting applications for the phone begin to proliferate in the second half of the year. BlackBerry sales should continue to grow but at a materially slower rate than they would have in the absence of the iPhone."