Needham: iPhone takes shine off RIM's Pearl

In guidance provided to stock traders, analysts John Lynch and Charlie Wolf downgraded RIM's rating from Buy to Hold, pointing to new questions about the Canadian smartphone maker's long-term prospects now that it had to grapple with a more direct competitor to its recently introduced BlackBerry Pearl. Lynch and Wolf together observed that while the Pearl was still the friendliest towards business and government buyers, the iPhone's emphasis on strong performance with a media-savvy focus had the "potential to impinge" on RIM's newly gained toehold in the mainstream.

While RIM is a "moving target" and may have a fresh model on offer by the time the iPhone rolls out in June, the analysts said, Apple's first cellphone may be the only real competitor the Pearl has seen since its September launch. The slim BlackBerry was the first from its creator to integrate a camera — normally a taboo item for secrecy-obsessed offices — and shifted attention towards music and video playback while keeping the immediacy of "push" e-mail that earned previous BlackBerries their workplace throne.

The mix is said to have loosened RIM's once stiff public image and has helped bring legions of first-time buyers to its doors. Even so, the Needham analysts warned that this might not be enough to sway mainstream buyers, who might be lured to Apple through better media controls.

"We expect a lot of would-be Pearl buyers will find iPhone's email [sic] to be good enough," Lynch and Wolf wrote, "in light of its unprecedented multimedia functionality and web browsing experience."

Besides its more tempting touchscreen interface, the iPhone's 4GB or 8GB of flash memory makes it a rare breed in the typically storage-shy American market and gives it enough room to store some owners' entire music collections. The Pearl has little free memory built-in and depends almost exclusively on microSD cards to load songs, capping its storage at 2GB.

Still, the analysts note that the iPhone's success is far from a surefire prospect. "Some buyers will need the reliable push email of BlackBerry, and some will balk at iPhone’s gaudy price tag," they said, also expressing caution over the uncertainty of a device whose feature list is far from certain. "We prefer to wait on the sidelines while questions over iPhone’s functionality are hashed out.”

Price may well be the Cupertino's ultimate Achilles Heel as it tries to break RIM's grip. Although far less ambitious, the Pearl that users can buy through AT&T (the iPhone's eventual destination) costs only half the iPhone's intimidating $499 price when part of a two-year contract — and doesn't require that contract for an eventual sale. The Pearl sells for $399 unattached to any service plan.

In light of such tall barriers, Lynch and Wolf have even raised the possibility of a compromise and suggested that the ascent of one company didn't have to mean the downfall of another. "Both Apple and RIM will be winners," Needham's researchers were quick to add when issuing the Hold rating. "We [only] think our prior estimates were too aggressive."