Research in Motion (NASDAQ:RIMM), which has slid from its once strong position in the smartphone market, is rushing to get its BB10 OS ready in time for launch early next year. The BlackBerry maker has already postponed launching BB10 smartphones by a year and cannot afford to delay it any further, as intensifying competition from Apple (NASDAQ:AAPL) and Samsung (PINK:SSNLF) in the smartphone market have more than halved BlackBerry hardware revenues y-o-y from around $3.8 billion to about $1.7 billion last quarter. As a precursor to the launch, RIM is revealing interesting tidbits about the new OS in order to maintain customer as well as developer interest in the new OS which the company is pinning all its turnaround hopes on.
First, it offered developers a glimpse of how the new OS would look like as well as handed out handsets running a dev alpha version of the OS at its BlackBerry World conference in May. The pre-release OS seemed more suited to touch-based smartphones and had additional features such as next-word predictive technology and a new camera app that allowed photos to be rewound to get the best shot. More recently, the company said that it is exploring various licensing options for the BB10 OS – a move that could increase the reach of the BB10 as well as fuel developers’ interest.  Further, RIM plans to offer BB users with a contact management feature that can collate contact details, blog posts, emails, tweets and other social details in a single page by taping various social media sites. 
Plummeting BlackBerry Sales
RIM is hoping that some of these features will help BB10 regain market share in a hotly contested smartphone market that has Apple’s iPhone as well as a horde of Android handsets hogging most of the customer attention. Licensing BB10 could help it tap the resources at the disposal of some of the biggest handset makers such as Samsung and widen the Blackberry reach, thereby enticing developers to write more apps for the BB ecosystem.
The struggling smartphone maker has seen its BlackBerry revenues fall y-o-y for the last four consecutive quarters. Last quarter saw RIM shipping only 7.8 million smartphones, a precipitous drop of 40% y-o-y and 30% q-o-q. The BB7 smartphone that was launched late last year isn’t doing well in developed markets, where the customers are upgrading to the iPhone and other Android-based smartphones. And the emerging markets, where entry-level smartphones have sold relatively well, are subject to pricing pressures from competitors.
With the BB10 OS launch delayed till the first quarter of 2013, RIM will be subject to much greater competitive pressures as the iPhone 5, Windows Phone 8 handsets, and a slew of improved Android smartphones will have been launched between now and then. The competitive pressure will come not only from potential customers who might decide to purchase rival smartphones, but also from developers who may have been put off by the management’s constant change of stance regarding the launch date.
Enterprise Focus Necessary
With slowing BB subscriber growth, RIM will aim to keep its 78 million current installed base intact to upgrade to BB10 later. Moreover, an erosion of its subscriber base endangers RIM’s ability to bank on its push e-mail and BBM service revenues to tide over this difficult transition period. CEO Thorstein Heins has said the company is looking to leverage the security strength of BlackBerry services that governments and enterprises around the world have come to rely on.
We believe the BlackBerry services, which include push e-mail and BBM, are unique value propositions for RIM’s customers, and the company is doing the right thing by realigning its focus on this segment. Our estimates show that this is RIM’s most valuable division currently, accounting for almost 45% of our price estimate for the stock. But a carrier push to reduce fees as well as a loss of more enterprise customers to rival platforms, as the bring your own device (BYOD) movement becomes more popular, could hinder RIM’s strategic moves to boost revenues from the services division.
We have a price estimate of $12 for RIM stock, about 60% ahead of the current market price.Notes:
- RIM Says BlackBerry 10 Will Soon Be Ready For Licensing, Bloomberg, August 14th, 2012 [↩]
- RIM plans new contact management features on BB10 devices, August 17th, 2012 [↩]