Will BlackBerry's Cheap Data Strategy Stem Market Share Loss In India?

| About: BlackBerry Ltd. (BBRY)

BlackBerry (NASDAQ:BBRY) is trying really hard to regain a foothold in the mobile devices industry after running into losses last year. The company's new management has been both prudent and aggressive at the same time. The company has tried to accelerate the pace of innovation while not letting go its key strengths in the enterprise segment. The company's new products both in software and hardware have been of high quality and have in general gotten great reviews.

However, the smartphone landscape has changed radically in the last few years. Instead of 5-6 companies, there are hundreds of companies competing to get a slice of this growing market. Smartphone shipments are expected to top 900 million units in 2013, making it imperative for every technology company to enter this market. BlackBerry is now a marginal player in crowded, highly competitive global market. While BlackBerry has refreshed its premium segment with the introduction of Q10 and Z10, the lower and middle segments have not seen a new product launch in a long time. This has made BlackBerry vulnerable especially in fast growing, emerging markets like India where price is a key consideration.

As BBRY takes time to introduce new cheaper handsets based on BB10, the company is trying to retain market share by introducing a new cheap data plan in the key Indian states. These plans will be sold to BBRY's older Curve and Bold models. This plan shows that BBRY needs cheaper BB10 handsets fast, as the company is feeling the pressure from competitors. I remain optimistic about BBRY's prospects given its cheap valuation and its attraction as an acquisition target.

Why the Indian smartphone market is a key battleground

India is one of the most important smartphone markets in the world right now, showing a 75% growth during 2nd half of 2012. Only ~10% of the total mobile shipments in India were made up of smartphones. The rapid growth and relative under penetration has made all the major mobile companies fight for a dominant position. Smartphone leaders like Apple (NASDAQ:AAPL) and Samsung (OTC:SSNGY) have shown tremendous growth over the last year. Apple has launched an innovative discounting plan for iPhone 4 while Samsung has unleashed a marketing blitzkrieg against other companies. Nokia (NYSE:NOK) which used to be the king of the market is fighting strongly with its new Lumia and Asha phones. Local player Micromax is set to cross $1 billion in total mobile revenues, as it looks to steal a march over the competition by introducing a whopping 100 mobile phone models this year. Its flagship Canvas 2 A116 smartphone has been a huge hit. The company has already introduced a 3D phone at a ~$180 and is all set to introduce a very high end 5.5 inch smartphone at less than $400.

Where is Blackberry placed in the Indian Market?

BlackBerry used to be a "status symbol" for India's elite classes where owning a BBRY phone was a compulsion. However, BBRY has lost that position to Apple as the company has been too slow in launching new products. BBRY messenger has also lost its attractions as people are increasingly using free messenger apps like "WhatsApp". Unlike BlackBerry messenger, "WhatsApp" works across all mobile operating systems. BlackBerry's most popular handset models like the Curve, Bold and Storm have become more than a year old. This is unforgivable in an environment where competitors like Karbonn, Lava, Micromax, Nokia and others are launching new smartphones almost every month. While the new Z10 has got some decent traction, Apple and Samsung remain far ahead due to their much stronger marketing and distribution strengths.

In 2009, BlackBerry did everything right. It launched the Vodafone 'BlackBerry boys' campaign and lowered the price of entry-level Curve handsets. Its new white and red Curves were a hit. College kids got hooked on to BlackBerry Messenger, a free substitute for SMS that let users share pictures or videos and chat in groups. The BlackBerry was a social networking device. Sales soared, but success was short lived.

In the last quarter of 2012, CyberMedia Research reports, Apple shipped 280,000 devices in India, while BlackBerry shipped just 210,000. Analysts say that even with a range of devices, the BB10 won't bring in the volumes. Amit Goel, CEO of research firm Knowledgefaber, says:

The company will do well to hold on to its five per cent market share in the Indian smartphone market, where Samsung tops with around 40 per cent.

What is Blackberry's new strategy to stem market share loss?

BlackBerry has announced a new cheap data plan in second tier Indian markets in association with major telecom carriers such as Vodafone, Aircel and others. Under this plan, Curve and Bold subscribers will be able to access the Internet for a nominal Rs 129 per month ($2.4/month). Subscribers will be able to access social networking, BBM, Internet and other services. However, this plan will only include BBM in Tier 1 markets and top cities like Mumbai, Delhi, Kolkata and Chennai. India's data services remain poor and highly expensive. Though 3G services are available, the high cost (relative to India's per capita income) has meant that carriers have not been able to get many subscribers. Voice remains the principal revenue stream for carriers in India.

Smartphone maker BlackBerry launched a plan offering all its services for Rs 129 per GB in 15 mid- and low-revenue generating circles, including Uttar Pradesh, Tamil Nadu and Rajasthan, targeting a deeper penetration in these regions. The monthly plan would be available on the network of Aircel, Idea Cellular and Vodafone.

BlackBerry needs cheaper smartphones to remain a viable player

While BlackBerry's strategy of introducing high end models on its new platform might be good in developed markets, it's a bad one for emerging markets. The market for premium smartphones remains very small and is dominated by Apple and Samsung. BlackBerry does not have a new product to target the bigger and faster growing smartphone segments. BBRY CEO indicated new cheap handsets would be released during 2013 and there have been reports about a new Curve successor (R10). However, the timing remains crucial, as BBRY cannot afford further delays. The cheap data plan will not buy much time for BBRY.

Stock Valuation

BlackBerry has a market valuation of ~$7.8 billion and trades at a low valuation with a P/B of 0.8x and P/S of 0.7x. BBRY posted a loss in 2012, so valuing it using the P/E ratio does not make sense. BBRY stock has climbed by ~26.4% in 2013 though in the past month the stock has given a loss of ~10%.

Summary

BBRY's stock has gone up quite substantially after the company started executing on its turnaround strategy. BBRY has impressed with its most recent quarterly results, but the company needs to do much more in order to survive. The company will need to keep delivering great new BB10 handsets in order to retain its market share in key emerging markets like China and India. The stock will see a lot of volatility as the market is not entirely convinced that BBRY will manage to remain a viable long term smartphone player. I believe that BBRY will benefit by being acquired by a bigger technology company. I believe that BBRY remains a buy due to its cheap valuation and good execution in its turnaround.

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.