All of Research in Motion's (RIMM) stakeholders let out a loud cheer of relief when the company announced that it would meet its January 30th, 2013, launch date target for its BlackBerry 10 smartphone product line. RIMM's shareholders were even more excited when it was announced that it would begin selling BlackBerry 10 smartphone devices within 30 days of its January 30th launch date. Many Doubting Thomases in the analyst community were concerned that RIMM would not be able to begin selling BlackBerry 10 devices until March. We think that investors are not concerned that such a long lead time between the official confirmation of the launch and when the BlackBerry 10 goes on sale will result in an "Osborne Effect" because it is not like anyone is running out to buy a BlackBerry right now. During the last eight quarters, Research in Motion's BlackBerry smartphone shipments declined from 13.4M in Q3 2011 to 7.4M in Q2 2013.
RIMM has always prided itself on serving the needs of institutional enterprise customers and because of its tunnel vision in ignoring consumer uses for a smartphone, it lost its position as North America's leading smartphone vendor to Apple Inc. (AAPL). Another factor that led to Research in Motion getting blindsiding by Apple's iPhone was while Apple was developing its iPhone smartphone device from 2005-2007, Research in Motion's CEO Jim Balsillie was focused on fulfilling his childhood fantasies of owning his very own hockey team. Furthermore, BlackBerry's perceived aura of reliable and secure service has been punctured with two notable service outages. We found it amusing that as Apple was releasing its brand new iPhone 5 smartphone device, Research in Motion's vaunted enterprise user network system was going out of service. Even though Research in Motion did better than everyone anticipated in its most recent quarter and even though Apple did worse than everyone expected, Apple's smartphone sales volumes in its most recent quarter was about 3.5X as much as Research in Motion's. Despite soft sales of Apple's iPad tablet computing device, Apple's iPad sold 14M devices in its most recent quarter, which is 8X the lifetime sales volume of the BlackBerry Playbook (1.74M).
In the November 12th press release highlighting the new BlackBerry 10, the company highlighted the following innovations for the BlackBerry 10 enterprise user:
- BlackBerry Flow and BlackBerry Hub: BlackBerry® Flow is a new user experience that allows seamless navigation across open applications and the BlackBerry® Hub. All messages, notifications, feeds, and calendar events come into the BlackBerry Hub and no matter what the user is doing with the device, with a simple gesture, they can peek into the Hub at any time.
- BlackBerry Keyboard: The BlackBerry Keyboard learns how you write and adapts to how you type so you can write faster and more accurately, giving you the kind of legendary typing experience that only BlackBerry can deliver.
- BlackBerry Balance: BlackBerry® Balance™ offers the most elegant way to satisfy both customer and corporate needs without compromising on either. With BlackBerry Balance, personal apps and information are kept separate from work data, and the customer can switch from their personal to work profile with a simple gesture. The work profile is fully encrypted and secure, enabling organizations to protect their content and applications, while at the same time letting customers get the most out of their smartphone for their personal use.
The feature that we find to be the most useful and innovative would be the BlackBerry Balance. If a business IT department has a Bring Your Own Device Policy and if it needs to wipe out the business side of an employee's phone due to outplacement, at least the personal information in the employee's BlackBerry would remain untouched due to this feature. Another use for BlackBerry Balance is it makes it easy for users to avoid mixing up their business and personal smartphone accounts. Also there are two separate App World stores, one for business and one for consumer.
With Apple's iPhone dominating the high-end market for smartphones and Google's (GOOG) Android operating system dominating the lower-end, Research in Motion with find the competitive environment tough. The Android-Apple U.S. market share in August according to ComScore was 86.9%. At least RIM was a distant third. However RIMM has to also deal with the potential threat from Microsoft's (MSFT) Windows Phone platform. We've received numerous emails from investors who have insisted that RIMM's operations are not North America-centric and that RIMM gets the majority of its revenues outside of the Anglophone world (Canada, the U.S. and the U.K.). The good news for RIMM's investors is that RIMM's revenue from areas outside of the English speaking world accounted for 58% of RIMM's most recent quarterly revenue. The bad news is that RIMM's revenues from countries other than North America and the U.K. declined by 28.5% and that was in line with the 31% revenue decline at a combined consolidated corporate level. The ugly news is that with the exception of Japan, Apple's most recently quarterly results for its 5 geographic markets exceeded RIMM's total consolidated corporate revenue in the most recent quarter.
Based on these observations, we see choppy performance for RIMM's stock and continued declines in operating income until it releases BlackBerry 10. Even once RIMM finally releases BlackBerry 10; it will have to deal with the difficult task of winning back smartphone customers. We have numerous friends and family members involved in sales, marketing, branding and competitive strategy who can attest to how although it takes much work to build a brand, destroying it is real easy. All the work RIMM expended to build its brand and image over its first 25+ years has basically been destroyed over the last two years. Other than the BlackBerry Balance feature that divided the phone into a work phone and a personal phone, we don't see anything really exciting about the BlackBerry 10 device. Furthermore, it will have to deal with Apple having its iPhone 5 on the market for five months and Microsoft having its Windows Phone 8 devices on the market for almost four months.
Disclosure: I am long AAPL.
Additional disclosure: This article was written by an analyst at Saibus Research. Saibus Research has not received compensation directly or indirectly for expressing the article’s recommendation. We have no business relationship with any company whose stock is mentioned in this article. Under no circumstances must this report be considered an offer to buy, sell, subscribe for or trade securities or other instruments.