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Palm's facing deep challenges to compete with Apple's iPhone, while Research In Motion's BlackBerry also seems set to lose market share to the device, at least in the consumer market, an analyst reports.
Needham & Co. analyst Charles Wolf has commenced coverage of Palm and RIM, and notes both companies face challenges as iPhone wins hearts and minds in the consumer and enterprise markets.
Palm faces the deepest challenge. Wolf warns the company has "lost its way". The lack of a new OS release in five years means the company is increasingly reliant on in-development products to regain its lost market lead.
"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.
Wolf also believes that Apple's iPhone may take market share from both competing firms once it introduces new enterprise-friendly features in June. RIM will see some impact in its core enterprise markets, while the expected diversity of third-party iPhone applications will hammer Palm's place in the consumer market.
"We believe BlackBerry's supercharged growth in this [consumer] market could slow materially when far more versatile applications developed for the iPhone begin to appear in the second half of the year," Wolf warned.
The analyst does note that this triptych of smartphone developers still hold a great lead on most competitors, because other firms (such as Motorola or Samsung) are tied to Microsoft's Windows Mobile system, which Needham & Co. calls "a non-starter in the consumer world".
The introduction of Google's Android platform for mobile phones may change the game once again, the analyst said, as it will offer a more extendible base OS than Windows Mobile to competing firms.
Despite it all, Wolf notes that Apple changed the smartphone industry when it chose to launch iPhone, describing the market as "totally disrupted" by the product's introduction.
"The iPhone is a game changer, weaving together a wide array of computer-like functions," he explained. "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."
Research In Motion's market leadership is based entirely on the incompetence of the competition, the analyst also said: "RIM's competitors until quite recently were simply inept. Their failure stemmed less from their ability to design sleek phones than in their choice of an operating system on which to run them," he explained.
The analyst rates Palm shares as under-perform, while RIM takes a hold rating pending the effects of June's release of iPhone Software 2.0.
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