Author: Matt Hartley

BlackBerry is cool again.

Festivities at Research In Motion
Ltd.'s annual Wireless Enterprise Symposium trade show in Orlando,
Florida get officially underway today with co-chief executive Mike
Lazaridis' keynote address, however, the BlackBerry-maker offered up
plenty of new details about its strategy during its capital markets day
with analysts on Monday.

On Monday, RIM took the wraps off two
new BlackBerry devies — a CDMA version of the business-focused Bold
device and a 3G version of its Pearl flip phone — debuted its new
operating system software (BlackBerry 6), a new Web browser and a new
version of its mobile voice system technology, which enables users to
combine their BlackBerry and business landlines and will allow users to
make phone calls over a WiFi connection. 

Earlier this month,
BlackBerry rival Apple Inc. unveiled a new version of its iPhone OS at
an event in San Francisco, which added new features including the
ability to run multiple applications at the same time and a new in-app
advertising technology, signalling the computer giant was planning to
launch a new version of its popular touchscreen smart phone later this
summer.

As RIM continues its push to expand beyond its core
base of business users, an easier-to-use software interface and
superior Web browser are seen as integral pieces of the company's
battle plan if it hopes to keep pace with the iPhone and devices
running Google Inc.'s Android software.

According to RBC
Dominion Securities' Mike Abramsky, the new OS and browser has a more
consumer-oriented interace that "may rival iPhone Android but appears
uniquely BlackBerry."

BlackBerry 6 may offer "RIM the
opportunity to narrow competitive gaps and sustain leadership," he
wrote in a note to clients on Tuesday.

RIM says it plans to
launch BlackBerry six in the third quarter of 2010 and analysts expect
the software to be loaded onto new BlackBerry touchscreen and QWERTY
devices. 

Although analysts were generally encouraged by RIM's new software and
browser — both of which were perceived to be lagging significantly behind
Apple's iPhone — there still remains some concern about how RIM plans
to roll out the new BlackBerry OS, which is seen as a complex
technology.

"Furthermore, we do not believe competition is
standing idle & new innovations (video conferencing, etc) as well
as the strong carrier promotions which RIM has enjoyed for many years
are becoming shared by other OEMs (Android, iPhone) and we see carrier
promotion commotion resulting in RIMM likely to spend more of its own
money on promotion & subsidy efforts," Citigroup analyst Jim Suva
wrote in a note to clients Tuesday.

While RIM remains the
market leader for so-called enterprise devices (read: business users)
in North America, Mr. Suva says that many companies are beginning to
life the ban on non-BlackBerry devices on corporate networks, which is
bad news for the BlackBerry maker. 

"While we recognize RIM’s low global market share we see its
core North America and enterprise market under attack and the consumer
space innovation has increasingly become more intense and we believe
this sets up for margin pressure as the future unfolds," he said.

On
the application front, RIM reiterated its strategy of not trying to
compete with Apple on volume — Apple's App Store has nearly 200,000
applications — but rather by working with developers to create "super
applications" that weave their way into the BlackBerry's ecosystem. In
the past, RIM has used apps from companies like Facebook and LinkedIn
— whose applications are integrated into BlackBerry's email contacts
and calendar applications — to illustrate this strategy, according to
Deepak Chopra from Genuity Capital Markets.

RIM expects much of its future growth to come from international markets outside North America, Mr. Chopra said. 

"Driven by the massive expansion of smartphones globally, RIM indicated
that International expansion was the biggest driver of its growth, with
BlackBerry Messenger being a key theme," he wrote in a note to clients on Tuesday.

"North America is more
competitive, however, RIM believes that it can maintain its market
share in the competitive context of the market."

RIM's WES conference continues until Thursday. 

– Matt Hartley 

 

As the Google vs. China saga continues to drag on, Wall Street analysts
are left wondering what to make of the search engine titan's plans for
the world's largest Internet market.

Yesterday, Google Inc.
announced it was shutting down its Chinese-language, China-based search
engine and had begun redirecting traffic to its Hong Kong portal in a
move which drew swift condemnation from Beijing.

By opting to
stop offering censored search results in China — which boasts the
world's largest Internet market with more than 384 million users —
Google is running the risk of the Chinese government blocking Google
sites for its citizens.

Of course, if Google loses access to
the Chinese market, that's bound to have an impact on the Mountain
View, California company's core online advertising business, and its bottom line.

While Google's
decision to redirect Chinese users to its Hong Kong servers may prove
to be the beginning of the end for the company's China controversy, it
"does not end the negative reverberations that are likely to continue
for some time," said BGC Partners technology analyst Colin Gillis in a note
delivered to clients yesterday.

"No one wins by Google's
actions," he said. "Google is not helping shareholders or the citizens
of China by exiting the country. China loses the benefit of having its
country grow by using Google's technology."

Mr. Gillis — who
maintains a Hold rating on Google's shares and a long term price target
of US$580 — said questions remain over how the hacking of Google's
Gmail service by unidentified parties in China resulted in the
company's decision to stop offering censored search results.

"The
lack of transparency from Google on the actual events and the decision
process that occurred is a disservice to shareholders," he said.

Google's
actions could have a downside impact of between $10-billion and
$15-billion on the company's market value (about $30-$50 per share)
depending on the severity of the response from the Chinese government.

If
Google does wind up being shut out of China, or if Chinese users grow
frustrated with the slower speeds of the search engine which are likely
to occur due to the increased traffic strain on the company's Hong Kong
servers, one possible winner would be Chinese-based search provider
Baidu.

J.P. Morgan analyst Dick Wei raised his forecast on
Baidu to US$650 from $540 based on the assumption that Google would
lose 50% of its traffic to Baidu due to "inferior user experience" and
Baidu's "current weaker monetization capability compared to Google."

Mr. Khan believes Baidu's revenue could jump by 8.5% ($85-million) in 2010 and 14.5% ($218-million) in 2011.

However,
Mr. Khan's forecast assumes Google will continue directing Google.cn
traffic to its Hong Kong servers, Gmail will remain accessible from
China, sites such as YouTube will still remain on the Google.cn servers
and that Google will maintain its marketing and R&D teams in China.

"From our checks, Google.com.hk is currently accessible from
China," Mr. Wei wrote in a note to clients yesterday. "Advertising is
up and running" sponsored advertisers links have moved to the HK
server. While current situation is in line with expecation, we believe
there are still risks that Google service will be blocked from China in
long run."

Matt Hartley

After a week of playing the role of catalyst in an international spat over online
freedoms between China and the United States, yesterday Google Inc. got
back to doing what it does best, namely churning out solid financial
results ahead of Wall Street expectations.

While the company's
revenue growth came in a bit below analyst predictions — causing
shares of the Mountain View, California company to dip 5% after hours
— earnings per share were ahead of anticipated targets and the company
netted a US$1.97-billion profit in the fourth quarter of 2009.

Analysts
were pleased to see paid click growth rise 13% year over year, and 9%
quarter over quarter, while cost per clicks — a stat which measures
the success of Google's online search advertising business — jumped 5%
year over year, indicating that not only Google's business, but the
broader online advertising business is stronger than it was last year.

"We think Google benefited primarily from a continued economic recovery
and strong retail ad spend trends and to a lesser extent from improved
YouTube strategies," said J.P. Morgan financial analyst Imran Khan.

Mark Mahaney at Citi believes the worst of Google's macroeconomic
headwinds are now behind it and that the company's most important
cyclical driver — cost per clicks — has turned around. He sees
display advertising and YouTube as large and profitable opportunities
and maintains a $640 price target on the stock.

Google
is banking on six trends playing a large role in transforming the Web
going forward — social, local, mobile, commerce, personalization and
cloud computing — and analysts believe the company is well positioned
to take advantage of each of those trends.

"We see a
reacceleration of revenue and earnings growth in the company
driven by tailwinds in display, mobile and local, which continues to
keep us  positive on the company’s growth prospects," Canaccord Adams
analysts Jeff Rath and Wayne Chang said in a note to clients on Friday,
reiterating their $700 price target on Google's stock (it currently
sits at about $560).

"Mobile remains a priority driven by innovation as ad clients get better
at converting traffic, thereby raising monetization trends.
Furthermore, Google’s relationship with Apple remains very stable
despite the emerging competition between these 'frenemies,'" they said.

While Google's domestic growth was the standout (up 11.1% year over
year) fuelled by the recovery of the U.S. economy and the return of
large advertisers to the online world, some analysts were concerned
with the company's international growth.

"We continue to view Google as the best positioned company to benefit
from the global recovery in online advertising, with International
catching up to domestic growth in 2010," RBC Capital Markets analyst
Ross Sandler said in a note to clients.

"We would use the post-quarter weakness as a buying opportunity, as we
believe that consensus estimates remain low and should continue to
drift higher in 2010."

– Matt Hartley