What Has Investors Worried About BlackBerry 10?

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Even though Research in Motion (NASDAQ:RIMM) reported third-quarter results that were largely in line with analysts’ expectations, the BlackBerry maker’s earnings conference call caused investors some anxiety as it became apparent that the company still faced significant challenges.

Shares climbed as much as 8 percent in after hours trading following RIM’s earnings statement release on Thursday, but the stock fell close to 20 percent after Friday’s conference call and the announcement that the company will settle a patent-licensing agreement with Nokia (NYSE:NOK) for an undisclosed amount.

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Although revenue dropped 47 percent to $2.7 billion and shipments fell 6.7 percent to 6.9 million, investors were satisfied with the results, as Research in Motion posted several losses in recent quarters. The smartphone manufacturer also strengthened its cash position over the quarter in preparation for a boost in marketing that will accompany the release of its new operating system, BlackBerry 10, at the end of January. As the Wall Street Journal reported, many analysts said that this quarter’s results “may buy the company some breathing room” until its two new phones hit the market.

But RIM’s longer-term prospects depend on whether its new phones are a success; the launch of the BlackBerry’s updated operating system and new hardware design could make or break the company. So far, the phone is experiencing significant carrier interest, with more than 150 service providers testing the phones, according to a statement that accompanied RIM’s earnings release. However Apple’s (NASDAQ:AAPL) iPhone and devices run on Google’s (NASDAQ:GOOG) Android will offer the phone significant competition, as together they control a huge share of the smartphone market.

Investors are worried whether the new BlackBerry phones will be popular with consumers, but the earnings conference call brought another concern to light. Statements made by company executives indicated that there may be problems with the pricing structure they have developed for BlackBerry 10 service. RIM generates more than a third of its revenue from the fees it charges customers for using the company’s proprietary network. While Chief Executive Thorsten Heins did not detail the changes of RIM’s service-revenue model, he explained that a tier-system would be introduced. “With the introduction of the BlackBerry 10 mobile computing platform, we will be transforming our service revenue model to reflect different usage levels of our network infrastructure and different value-added software security and service packages,” he said.

Because of this change, analysts at Deustche Bank predict that Research in Motion’s revenue from service fees will fall by 20 percent. Goldman Sachs held a slightly different opinion, noting that increased carrier support could offset service losses, but investors are not confident in the new model.

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