RIM runs its own network infrastructure, enabling it to encrypt, compress and push data to BlackBerry phones via a cellular network. The Canadian company brought in almost $1 billion from this high-margin service last quarter, one-fifth of its total sales.

But a second U.S. government agency in as many months, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), said on Monday it would remove its BlackBerry servers in favor of a nimbler alternative that offers support for a wider variety of devices.

According to Northern Securities analyst Sameet Kanade, RIM - once the only option for secure mobile communication - has moved too slowly to counter the threat posed as companies and governments increasingly allow employees to use their own mobile devices for work. Meanwhile, carriers have soured on paying the BlackBerry service's fee, he said.

"We now firmly believe that RIM does not have the luxury of time on its side," Kanade wrote in a note to clients in which he cut his rating on RIM stock to "sell" from "speculative buy" and chopped his target price for RIM shares to $7 from $24.

RIM's shares fell 4.3 percent to $13.20 on Nasdaq on Monday afternoon, 75 cents above an eight-year low they hit in December. They have shed 80 percent of their value since February 2011 due to RIM's falling U.S. market share, botched product launches and dismal earnings.

Several analysts predict another dire earnings report later this month.

The stock was down 3.4 percent at C$13.13 on the Toronto Stock Exchange.

RIM has struggled to match the consumer-friendly features of Apple's iPhone and iPad or the ever-improving hardware of devices using Google's Android software, which have both made strides towards matching the famed security that once ensured corporate loyalty to the BlackBerry.

Highlighting the risk for RIM, the ATF said it plans to remove its BlackBerry servers by the end of the year.

The ATF's 2,400 BlackBerry-wielding field agents will switch to iPhones due to better maps, streaming video and other applications on the Apple device, the agency's chief information officer, Rick Holgate, said in response to emailed questions.

Another 1,400 staff will retain BlackBerrys managed by Atlanta-based AirWatch, whose device-agnostic service starts at $3 per user per month, plus set-up and other fees. The new system will allow the agency's employees to use their own devices, although this has not yet been authorized.

"We are moving to an email-as-a-service model in which BlackBerry support is also included, so we will no longer need our own BlackBerry Enterprise Servers," Holgate said.

In response, RIM said that it works closely with its more than one million government customers in North America "who rely on the unmatched security of the BlackBerry platform".

Another U.S. agency, the National Oceanic and Atmospheric Administration, said last month it would ditch its BlackBerry servers by June to trim costs, while Washington's main procurement agency has started to issue iPhones and Android devices to its workers.

Oilfield services company Halliburton plans to switch 4,500 BlackBerry-toting employees to iPhones and a slew of banks have also welcomed BlackBerry rivals.

RIM's make-or-break BlackBerry 10 smartphones, due out later this year, will require a new server software component called Mobile Fusion that also allows its core enterprise customers to manage rival devices.

But while Mobile Fusion is due out this month, Northern Securities' Kanade said both traditional software companies and carriers are already introducing similar products at a lower cost.

He estimates RIM gets roughly $5 a month per subscriber, which could fall below $2 per user by February 2013. He expects service revenue to fall 48 percent in the next two years.

Northern's parent company owns Jaguar Financial, which has agitated for radical change at RIM, including a break-up or sale.

($1=$0.99 Canadian)

(Reporting by Alastair Sharp in Toronto; editing by Rob Wilson and Peter Galloway)

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