The month of September promised to be an exciting one for the mobile industry and has delivered the goods so far. Nokia (NYSE:NOK), Motorola (now acquired by Google (NASDAQ:GOOG)) and Amazon (NASDAQ:AMZN) have already set the ball rolling this week with their respective flagship smartphone and tablet upgrade announcements, and Apple (NASDAQ:AAPL) is poised to make its own announcement next week. In the lead up to these high-profile announcements, a host of other handset makers such as Samsung (PINK:SSNLF) and LG made waves with their respective product launches. Samsung debuted its first Windows Phone 8 smartphone, apart from a host of Android devices, and LG took the wraps off its upcoming flagship Optimus G smartphone powered by a quad-core Qualcomm (NASDAQ:QCOM) processor.
However, conspicuous by its absence in September and possibly through all of the holiday season is erstwhile smartphone leader, Research in Motion (NASDAQ:RIMM). The beleaguered company is rushing to get its BB10 OS ready in time for launch early next year, having already postponed launching BB10 smartphones by a year. While CEO Thorstein Heins maintains that the delays are to ensure that the product is completely ready before launch, the constant postponement has affected the BlackBerry brand and caused its hardware revenues to more than halve y-o-y from around $3.8 billion to about $1.7 billion last quarter. The number of new product launches being announced ahead of the holiday season makes the turnaround RIM is hoping for next year that much tougher.
Plummeting BlackBerry Sales
The sustained decline in BB’s market share is not only a result of fewer new subscribers choosing to buy a BlackBerry. Even existing subscribers, especially in developed markets such as the U.S., are choosing to upgrade to rival smartphones such as the iPhone and Android-based ones. In a recent Comscore report, it was revealed that RIM’s share of the U.S. mobile subscriber market has fallen below 10% for the first time in years even as Google and Apple continued their dominance in the fast-growing market.
Worryingly, RIM’s woes are not limited to the developed markets alone. In the emerging markets, where entry-level smartphones have sold relatively well, RIM is facing pricing pressures from competitors selling cheap Android based quasi-smartphones.
With the BB10 OS launch delayed till the first quarter of 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. The competitive pressure will come not only from potential/existing 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 now aim to keep its 78 million current installed base intact to upgrade to BB10 later. An erosion of subscriber base will endanger 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 $12 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.