BlackBerry's Blunder In India

| About: BlackBerry Ltd. (BBRY)

BlackBerry (NASDAQ:BBRY) Inc. released its flagship BlackBerry 10 device, the Z10, yesterday. India is the second largest phone market in the world by users, but smartphones account for a measly ~10% of total phone sales. BlackBerry is hoping to capitalize on the country's growing use of smartphones, but may not have entered the market properly.

The Market

India is the second largest phone market in the world. As of October 2012, the country had ~910 million phones in circulation, second only to China. Compare this to the US subscriber base of ~330 million. Although the amount of mobile phones (and people) is massive, only about 10% of Indians with a mobile phone own a smartphone. The market seems ripe for capitalization; huge sums will be made when smartphones begin to take over. BlackBerry is smart to enter a market like this, as it gives them valuable exposure to a country with triple the amount of phones in use as in America.

The BlackBerry

In India, phone carriers don't subsidize their phones. While in the United States we are used to getting a cushy discount when we sign the everlasting 2-year contract, most people in India are on prepaid phone plans. Because of this, carriers don't bother to even offer to pay a portion of any device that you may purchase. The BlackBerry 10 line of phones isn't designed for the bargain-bin; they are made to compete in the highest tier of smartphones. This makes them expensive to design, produce, and update. It should come as no surprise then that BlackBerry released the Z10 for a whopping $800 in India, translating to 43,490 rupees.

$800 is a lot of money. If any of us spoiled Americans walked into a phone store and were asked to pay $800 for a new device, chances are we would walk away and find a different provider. It's hard to imagine people in India, where the average person makes $1,410 a year, to shell out that kind of cash for an electronic device. It's completely outrageous to expect people to spend, in the average gross salary case, 56% of their yearly income on a phone.

The Competition

The top player in the Indian smartphone market is Google (NASDAQ:GOOG). Google currently holds 40% market share in India. This is because the Android operating system is free, allowing for much cheaper phones. You can get an Android smartphone in India for as little as 5,900 rupees - basically 1/7 of the price that Blackberry is offering their device at. Evidently, the Indian market is very price sensitive right now. You have a massive amount of people with very little money to throw around. Yet, everyone wants a smartphone. It's the must-have gadget. If your family has to starve in order for you to have one, however, you might think twice.

BlackBerry formerly maintained a presence in India. During Q1 2012, Blackberry held 12.3% market share in India. This has since dwindled to ~5%, all thanks to Android. Users won't come back because they simply don't have the money. Apple market share is around the same, and the iPhone 5 sells for a similar price in India.

Conclusions

The Z10 cannot feasibly sell well in India. The Indian smartphone market is still within its fetal stages, and the primary reason that the trend has started shifting towards more high-tech phones is the low cost options being provided by Samsung (OTC:SSNLF). BlackBerry has miscalculated and will fail to regain market share. I think that they will even lose what little they had. While India may not be the only smartphone market in the world, it is on pace to become one of the largest. And BlackBerry will not be part of it. On this news, it seems advisable to not go long.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.