Google's Business-Focused Nexus One: Should RIM Be Worried?

Includes: AAPL, BB, GOOG
by: Trefis

Google (NASDAQ:GOOG) announced that the next version of the Nexus One phone will be for business users and might have a physical keyboard. We believe that a business focused Nexus One that incorporates Google’s Apps productivity software could negatively impact Research in Motion (RIMM) since RIM’s stock is highly sensitive to changes in RIM’s mobile phone market share.

While RIM’s stock is heavily dependent on its BlackBerry mobile phone business, we estimate that the Nexus One constitutes only 9% of Google’s stock. In comparison, the iPhone accounts for about around 50% of our estimate for Apple’s (NASDAQ:AAPL) stock.

There could be a downside of 10% to the $75 Trefis price estimate for RIM’s stock if BlackBerry market share does not increase as much as we forecast as a result of greater competition from Google’s Nexus One.

RIM Still Dominates the Business Mobile Phone Market

Historically, RIM’s revenues have come mainly from business customers and the company has been diversifying its customer base by introducing new products for the consumer segment. According to a report from ChangeWave, RIM still dominates the enterprise mobile phone market with a share of about 76%, while Apple comes a distant second with a market share of 14%,

BlackBerry phones have all the necessary security features required by corporate customers, which has made the devices a popular business device. The BlackBerry has features like hardware security, remote data removal and remote phone lock.

Google Apps Can Help Nexus One Adoption

Google Apps refers to Google’s web-based office software that includes e-mail, calendar, word processing, spreadsheet and collaboration programs. We estimate that Google Apps constitutes 3% of the $705 Trefis price estimate for Google’s stock. Together, the Nexus One and Google Apps account for about 12% of our estimate for Google’s stock. (Click to enlarge)

Google Apps continues to win new business customers due to its cloud based delivery model and attractive pricing. Google Apps is accessed over the internet and maintained in Google’s data center rather than on the computers of apps customers. Cloud-based services can provide cost and maintenance savings over traditional on-premise software.

We believe that business adoption of Google Apps can help sales of the Nexus One phone to business customers. Google can integrate mobile versions of Google Apps with the Nexus One and potentially provide bundled pricing of Nexus One phones along with apps.

Despite the possibilities, we believe that Google’s Android mobile phone operating system will need to incorporate additional security features before the threat to RIM materializes.

Potential Impact on RIM’s Stock

We currently forecast that RIM will continue to increase its market share from less than 3% in 2009 to 8% by the end of Trefis forecast period. You can modify our forecast for RIM mobile phone market share below to see how there could be a 10% downside to our estimate for RIM’s stock if RIM mobile phone market share were to reach 7% instead of 8% as a result of greater competition from Google’s Nexus one.

For additional analysis and forecasts, here is our complete model for RIM’s stock and Google’s stock.

Disclosure: No positions