Does RIM See The Gap in iPhone’s Defenses?

Yesterday, Research In Motion Limited (RIMM), a world leader in the mobile communications market reported a strong fourth quarter that beat estimates driven by the success of its BlackBerry Storm, which initially had some technical problems in its release in Q3.

Q4 revenue was up 84% y-o-y and 24.5% q-o-q to $2.78 billion on a shipment of 7.8 million devices (up 80%). Net income was $518.3 million or $0.90 per share versus $412.5 million, or $0.72 per share last year. Analysts expected revenue of $3.4 billion and earnings of $0.84 per share.

For the fiscal year 2009, revenue was up 84% to $11.07 billion on shipment of 26 million devices. Net income was up 46.3% to $1.89 billion, or $3.30 per share. The total of cash, cash equivalents, short-term investments and long-term investments was $2.24 billion at the end of the quarter, down from $2.49 billion at the end of Q3. Uses of cash included capital expenditures of $252 million and the acquisition of intangible assets of $222 million. It recently completed the acquisition of Certicom (cryptography).

RIM added about 3.9 million net new BlackBerry subscriber accounts in the quarter, up over 50% q-o-q and the total BlackBerry subscriber account base at the end of the quarter was about 25 million. RIM shipped its 50 millionth BlackBerry in January. This tremendous performance was driven by better than expected momentum following the holiday season and positive reception of the touch screen model Storm and other products launched in Q3 and Q4. Device ASPs in the quarter were about $370, higher than Q3 due to shifts in product mix.

In its stronghold enterprise market, RIM had double-digit subscriber growth. Over the last two years, RIM has been focusing on the more competitive consumer market and currently about 70% of net new subscriber accounts were non-enterprise and about half of the total BlackBerry subscriber account base is non-enterprise.

In an earlier post, I had explored how new product launches in the consumer market are leading to the downward trend in margins. The consumer market typically has lower margins compared to the enterprise market, high marketing costs, and more pressure to launch new products. From about 50% in Q2 and 51.4% last year, gross margin has fallen to 40% in Q4. However, RIM expects to improve gross margin to between 43 and 44% in Q1 of fiscal 2010 through its cost reduction efforts, together with a favorable shift in product mix. For fiscal 2010, RIM expects gross margin in the low 40%s.

Somewhat along the lines of Apple’s App Store, RIM has launched the BlackBerry App World that offers BlackBerry users a way to browse, buy, download, and install apps over the air. There is also talk of a new device to be launched in the summer that will feature a touch screen and traditional keypad and compete directly with the Palm Pre.

RIM is currently trading around $49 with a market cap of about $28 billion. I recently explored the possibility of Dell acquiring RIM. It hit a 52-week low of $35.05 on March 9. Its 52-week high was $148.13 on June 19 last year, a tumble driven mainly by the economy and its margin issues.

On strategy, I would personally feel more comfortable if RIM followed its strength in the enterprise market, and got more deeply into application infrastructure, making it viable for enterprise app vendors to make their applications accessible from the RIM devices easily, elegantly, and seamlessly. If I were advising RIM on their development platform strategy, I would ask them to focus on courting business application developers, an area that has never been Apple’s strong suite. I just hope that RIM is not going to go about chasing Apple’s tail in the consumer app arena with game developers, for instance.

I see a wide open opportunity for RIM. The question is, does RIM see it?

Comments

[Dr Jocko:]

"I would ask them to focus on courting business application developers, an area that has never been Apple’s strong suite."
~~~~~~~~~~~~~~~~~
Two weeks ago, I switched from BB to an iphone. BB lacks a DICOM viewer. The iphone has OsiriX. My BB has an empty SIM slot.

Apr 03 12:56 PM

[Paul H. M.:]

IPhones would be much more desirable if Verizon had them.

No way in hell I'd give up crystal clear Verizon service to get an IPhone. AT&T's service sucks in comparison.

Apr 04 12:33 AM

[Roger Knights:]

The Storm lacks WiFi capabilities, so it can't run Skype, unlike the iPhone. This will be a deal-breaker for some people, going forward.

Apr 04 01:47 AM

[F. J. Taylor:]

Don't know what this author has been smoking - maybe too much Crackberry weed...

I loved Verizon too, and had been with them since the Airtouch days. I would have stayed with them if they had the iPhone. However, I recently switched to AT&T to get my iPhone, and guess what? The service is fine - and I live in a remote coastal / rural area, where my Verizon service is spotty. I also bought my daughter one (she is in Arcata, CA, an area even more notorious for poor reception!), and it works just fine. My son was the first to get one in our family, so no need to get him one! And both switched to Macs after years as Windows users, as has my brother [who also has just switched from Verizon and gotten an iPhone], so we are just one big happy Mac family now! When my wife's contract runs out, I am getting her one - she can't wait!

As to the Storm - even my Crackberry addict pals think they sucked, and still do. In fact, some switched to iPhone in frustration - and are glad they did!

As to enterprise - iPhones (and Macs) are gaining by leaps and bounds, because the people in the firms - from office boys to CEOs - are getting them, and the big boys are pushing their tech to support them. My brother is an executive in one such firm, Carhartt industrial clothing, an old and respected national brand still in the same family - and their tech now supports iPhones. He is very happy with his iPhone and service.

The idea that BB's rather weak launch of the aptly named Storm (an obvious iPhone clone attempt) and an equally lame apps store (ditto), are, like most copy-cat ideas (such as the other iPhone and earlier iPod "killers"), just poor imitations of the real thing - and will likely go about as far as the Zune and other junk.

While BB was a great phone in its day, that day is over. I don't think they (or Palm) have what it takes to catch up, let alone supplant, the iPhone - and even if they do catch up, by then Apple will have released another wonder.

I am not sure where the author is getting these ideas, or coming from (unless deliberately trying to manipulate the stocks in question), but she is obviously not in touch with the real world.

(For the record, I am not only a very happy Apple product user, but am long on Apple - because I like, use and believe in their products and company, and think they have one of the best marketing programs and brand recognition in the entire industry.)

Apr 04 03:45 AM

[mollytjm:]

it won't matter if RIMM focuses on more business apps because those developers are working on programs for the iPhone too! And have you been in an Apple Store lately? They offer all sorts of free classes for business people. They are going to be tough competition for anyone because they offer seamless, innovative tech experiences and they treat their customers like gold (which they are but so many companies don't seem to feel the same way).
No matter what the other guys do, Apple will remain the top innovator and the rest will spend a lot of time and $$$ trying to play catch-up.

Apr 04 10:24 AM

[martyg:]

verizon is on the list as one of the most wanted needs for iphone users and prospective users. att has been spotty in many areas including nyc.

att is supposed to roll out major improvements in coverage in 6/09. we'll see, but if what is rumored is true, then that shortcoming will become history.

rim managers better start resetting their clocks as to what time to come to work.

Apr 04 12:13 PM

[Steve Ward:]

The author, me thinks, is spot on. I've talked to people in the business and they all say, "Business apps", will be the game breaker. Apple will go on as a cultural icon, making real money, but unless as the author states, business apps have not been their forte, somebody else will grab it.
A[[le runs a risk of identically repeating its large historical mistakr, wedding its hardware with its software and not allowing 3rd party development apps.

Apr 04 01:07 PM

[winindthedust:]

Um- like the over 30,000 - 3rd party applications they already have?

What are you talking about? 3rd party development is what Apple wants on their desktop & mobile platforms!

What is wedded together, is the OS and the hardware.... this is what gives the great seamless experience, and allows 3rd parties to deliver a similar consistent UI experience.

There are already thousands of 3rd party business apps for the iPhone, and more being created everyday. With 3.0, and more access to the hardware side, you will see even more business specific applications developed- by 3rd parties.

On Apr 04 01:07 PM User 213076 wrote:

> The author, me thinks, is spot on. I've talked to people in the business
> and they all say, "Business apps", will be the game breaker. Apple
> will go on as a cultural icon, making real money, but unless as the
> author states, business apps have not been their forte, somebody
> else will grab it.
> A[[le runs a risk of identically repeating its large historical mistakr,
> wedding its hardware with its software and not allowing 3rd party
> development apps.

Apr 04 03:00 PM

[winindthedust:]

I'm also very irritated with the whole so called, "business" discussion.

These "people in business" you've talked to, what exactly are they looking for? I'm a business person, and, to tell you the truth, I didn't actually KNOW what I was looking for, until I understood what was actually possible!

With BB, most so called "business apps" are only email, scheduling, and company wide communication & collaboration and maybe also a calculator... what else would you actually call a productive business activity to perform on a BB? I mean, come on!

Business is about making money, so what are the so called special business apps that we're talking about? How can you say BB is for business and the iPhone isn't? PCs are for business and Macs are not?

If business is about making money, then let me open your eyes, stop wasting money on Windows IT and transition to the Mac. Productivity will go up, and IT support and Microsoft licensing costs will go down! That certainly is a worthwhile business venture! I speak from real life business experience on this.

Back to the "smart phone" market. What IS true, is that Rim has traditionally owned the "business" & "enterprise" world because of slick email, texting, calendaring, and company communication services. However, this no longer applies, as OTHER manufactures now offer these same services, as good, if not better. This is good competition, and good for all of us.

Now, what the iPhone has done for business, specifically, is open up an unlimited device platform that can be used for specific time saving, money making, business productivity tasks. We're not talking about cubicle workers here, where a computer is the productivity choice. We're talking about Doctors, Lawyers, Engineers, Realtors, Contractors, Plumbers, Salesmen, Project Coordinators, Teachers, Presenters, Factory Supervisors, Delivery services, Mechanics, Truck drivers, Farmers, Police & investigators, etc. etc. THESE are the "business" people that now have access to real, on the go, productivity software & devices.

Taking the BB & iPhone & even Palm out of the picture.... let's imagine some real apps now possible, and very probable, since Apple has shaken up the status quo:

Farmers can take their hand held device, and use applications that make use of location services to plot various crop yields, plantings, fertilizers, soil conditions, weather data, etc. These devices with software, can even be developed to plug-in to various pieces of equipment, sharing data, saving histories, and transferring to the cloud and the home office.

Communication to vehicles over bluetooth or wifi to give vehicle histories, fuel used, miles driven, engine codes thrown, race tuning, accident reports, and use your imagination....

Delivery services: order taking, customer tracking, route planning, money taking, invoice generating, employee tracking.... one device with complete software solutions.

What can you think of? That's the real question. On the go, money making, time saving, productivity driven business software on a flexible use hand held device with limitless user specific hardware attachments and interfaces... the sky's the limit.

We haven't even scratched the surface of the real business market potential that's out there.

Apr 04 03:45 PM

[winindthedust:]

To end my rant:

I'm only railing on this subject, because to invest in the best way possible, we need to have the complete picture. Some of the readers may not actually use a "smart phone" or even use it for business... therefore, they make investing decisions on what they read and are told.

So the Author raises a question in the title... let me answer it for you. The "business" advantage argument for Rim is no longer there, and hasn't been there, ever since Apple opened up their 3rd party software development SDK & introduced the App Store. This so called "advantage" has further been eroded by the introduction of iPhone 3.0 SDK, which opens up the device itself, to 3rd party development.

When most pundits think "business advantage" in conjunction to BB vs. iPhone, that is code for "push email & physical keyboard". If that's what they think the holy grail of productive business use is, then employers need to be alerted to this, so they can find real, money producing jobs for their employees!

The fact is, Rim is pushing into the consumer market, as that's where they see future profits coming. They wisely realize, that they no longer are the "default" for businesses, as other devices from Apple & soon Palm do the same thing they do, and arguably better. As a business, they will target "prosumers". Don't worry, there is a lot of money for Rim & Palm to make, in copying Apple, it's a huge market, and there is plenty of room for all. What will be difficult, is not making money, but owning and leading the market. To do this, they must not copy, but differentiate themselves, which will take broad and new innovation. They could do this, but really, it's not key to there success. Let Apple spend the R&D dollars & take the risk. Come in behind, and make money by simply providing user choice. The Storm is a good example to this. It was a profitable money maker, even though compared to the iPhone launch, some would call it a flop.

Long Apple, Rim, & Palm; The REAL "smart phone" market has only begun, and growth potential for all will be huge for the next few years. It's still a big sandbox, folks.

Apr 04 04:22 PM

[brewer:]

What BB 'business' advantage? What you are seeing with these results is RIM's last gasp.

Don't forget, AT&T only has a couple years left as an exclusive service provider for iPhone. AT&T has the best service in my area. I can 'hear you' just fine. If we had comunity WIFI, you wouldn't even NEED any cell phone, just an iPod touch! Skype has phonomenal call quality, and better security than any cell provider. (supposedly, homeland security are upset they can't listen in on it.)

RIM is way down (relative to Apple) for a reason. Apple will be THE growth stock of the next few years. There aren't many shares available.

Apr 04 07:32 PM

[JamesApple:]

Great observations and comments from everyone. I have learned much from your views. From my view I see the strict and inpreachable border between genuine business systems and a mobile device. RIM offers a severely limited set of functions for businesses, even as for email a laptop or desktop is much more preferred and realistic than the RIM Blackberry. The role a RIM Blackberry has in a company is neglibly relegated to a managerial toy that does little more than reminding senior management that 'you got mail'. In reality RIM's chaotic and incoherent workstyle and culture is a major bane to doing businesses, how can anyone make serious use of the RIM Blackberry for business purposes? worse yet, making business decisions or communicating with business partners using the RIM blackberry is apt to cause the wrong business decisions being made, and exposing potentially very sensitive corporate on the internet for the competition or enemies to look at. Few businesses use the RIM Blackberry for 'real' business uses, the RIM Blackberry serves more for a status symbol that impresses more than works, like a good looking personal secretary who can't do real work. Real business software run on real business machines and networks. Business applications are created depending on the size, scope and nature of the businesses. Almost all the existing business applications are built by user requirements, whether if the business application application is built from the ground up, or if it is a internationally acclaimed standard like the SAP AG line of internet enabled application suite. The SAP ERP product called SAP ECC 6.0 is built on top on open systems platform incorporating business logic, operating system and database and communication interfaces that provides traditional back office functionalities such as Finance, Accounting, Sales and Distribution, Material Managerment etc., and front office functionalitites such as Customer Relationship Management, Field Sales Force Automation, Supplier relationship Management. Also included are myriads of middleware capabilities such as eBusiness, Portals, Mobile Infrastructure, EDI, collaboration rooms, web services, etc.

Putting all these functionalities into a RIM Blackberry is totally inconceivable, therefore RIM had never been a player in the business world. Calling the RIM Blackberry a business device is like calling my home's garage door a enterprise portal.

That is why RIM is moving away from being a pet for senior management and into the real hard knock world for a mobile phone. The declining economies of the world simply cannot to buy these simple tasking mobile device for their senior management.

It is a very very crowded world in the consumer mobile phone market, one that RIM must wake up to really soon, and drop all its pretendings from its prima donna past as an executive pet phone. Carriers have to realize that there is only so much consumer needs to be satisfied and providing the optimal choices for consumers instead of playing along to the tunes of RIM promising some versions of future that simply do not, and will never exist.

In the consumer mobile space Apple has ignited a market that Apple alone has long donimated with its iTune sales channel. The relationships forged between the artists and iTune have been so deeply established there is no need to think about fighting for the artists to switch over to the RIM app world. Otherwise, RIM is relegated to the status of a show dog thrown into a jungle fighting for survival, RIM is going to provide a heck of a show going down as snack into the bellies of the king beasts like Nokia, Samsung, LG, and yes, Apple.

Apr 05 04:34 PM

[Frank Castle:]

James you are one crazy MF.

RIM IS BUSINESS. Christ BES is right up there as mission critical application along with the email infrastructure. Maybe if you actually supported and worked in Enterprise you'd understand that.

RIM is further extended with REAL business apps then anything the AppStore is peddling:

Full Bloomberg app - not the toy iPhone has.
Full SAP
Webex intergration
full PBX intergration (remember voice? yeah it's still a critical app)
Expense Management via Concurr

With vendors like Pyxis Mobile you can extend any backend system you want and maybe it you actually knew something about mobility / usablitity you'd understand that it's not about recreating the app it's providing the information needed for your workers to do their business, improve their workflow and speed customer support.

Funny thing about Apple is they don't seem to offer much security with iPhone, The device is easily jailbroke. Still no means to manage or whole device encrypt all this fantastic business data that you carry around in your pocket. So for you .. some small business owner - great your needs are met. Having to support thousands of mobile devices Blackberry is so far ahead of anything Apple it's not even worth considering it. Upfront you might save some money but on the backend you will be paying for solutions to patch all the shortcomings iPhone has. In case you don't have compliance in your "company" many states have regulations requiring encryption of all consumer data - interesting how all these iPhone enabled companies will meet that demand. It's not possible on iPhone and speaking with Apple they have no desire to listen to what enterprise wants. Their perfectly happy serving consumers.

Apr 06 10:02 PM