Several conflicting reports have emerged in the last couple of days regarding Research in Motion’s (NASDAQ:RIMM) upcoming BlackBerry Enterprise Server 10. With RIM preparing to launch the enterprise server simultaneously with new QNX-based BB10 devices in Q1 2013, concerns were raised about the compatibility of the BES 10 with older BlackBerry devices. RIM sought to clarify the concerns with a statement on Wednesday that the company would provide an upgrade to the BES that will not only be compatible with its current line of smartphones and tablets, but also support iOS and Android devices. However, the transition path may not be very smooth according to BGR, which claims that the enterprises will need to run the older BES 5 alongside BES 10 to support the older devices. 
While RIM hasn’t issued a public clarification, if BGR’s claims are true, it could make installations costly and less desirable for enterprises. This could not only result in fewer installations of the new servers but also cause faster migration away from the BlackBerry platform. With RIM still largely dependent on enterprises for its Push Email division, which constitutes 44% of our $12 price estimate for RIM, this could be a big blow to its turnaround plans.
Plummeting BlackBerry Sales
- How will HBO, Political Ad Spending and Box Office Collection Affect Time Warner Inc’s Q1 Revenue?
- How Has Discover’s Revenue Composition Changed In The Last Five Years?
- By What Percentage Did Textron’s Revenue & EBITDA Grow In The Last 5 Years?
- How Has Duke Energy’s Revenue Composition Changed In The Last Five Years?
- Priceline Q1 2016 Earnings Preview
- MGM Resorts Q1 Earnings Preview: Watchout For Non-Gaming Operations Growth
The struggling smartphone maker has seen its BlackBerry revenues fall year-over-year 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% sequentially. Consequently, RIM’s revenues from the BlackBerry smartphone division have declined by more than 50% y-o-y from around $3.8 billion to about $1.7 billion last quarter. The BB7 smartphones that were launched late last year aren’t doing well in developed markets, where more customers are switching to iPhones and Android-based smartphones. Meanwhile, emerging markets, where entry-level smartphones have sold relatively well, are subject to pricing pressures from competitors.
RIM is currently hoping that the launch of new BB10 devices early next year will help it stem market share losses and compete better with smartphone rivals Apple and Samsung. However, with the BB10 OS launch delayed by almost a year to Q1 2013, RIM will be subject to even 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. Further, with RIM’s consumer appeal falling and the BYOD movement taking over, RIM cannot afford to jeopardize its relationship with enterprises, which have been one of its primary drivers of revenues from day one.
Enterprise Focus Necessary
With BB subscriber growth having stalled, RIM is counting on its current installed base of 78 million to drive the success of the BB10. RIM’s CEO, Thorstein Heins, has said that the company is looking to leverage the security strength of BlackBerry services that governments and enterprises around the world have come to rely on. The BES 10 is therefore being designed keeping in mind the ongoing BYOD trend to help enterprises manage other platforms such as iOS as well as Android while maintaining the same kind of security.
However, if enterprises find it tougher or more costly to manage existing BlackBerry devices with the new upgrade, they might prefer to stick with the older servers or even jump to a competing platform. Either way, BB10 device sales could slump, although retail customers form a greater proportion of the BB subscriber base. More importantly, it would have an impact on RIM’s most valuable division currently and one of its last bastions of strength – Push Email. We believe the BlackBerry services, which include push e-mail and BBM, are unique value propositions for RIM’s customers, and the company should therefore try to make it easier for enterprises to upgrade their servers while addressing the BYOD trend. With RIM’s turnaround hopes hinging on the success of the BB10 OS, it needs to get such strategic decisions right.Notes:
- RIM confirms BES 10 will not support existing BlackBerry phones without BES 5, BGR.com, August 22nd, 2012 [↩]