RIM: Strong Gains Hinged On BB10 Success

| About: BlackBerry Ltd. (BBRY)

A report released in early April painted a clear picture of the leaders in the world of smartphones, and at the top of the list are the usual suspects - Apple's (AAPL) iPhones and Google's (GOOG) Android powered smartphones.

Also on the list is Research in Motion's (RIMM) Blackberry, but of the three, it was the only one that saw a decline in the number of subscribers who chose its smartphone.

While many are ready to write off RIM for this very reason, I am inclined to hold off on saying the end is near for them. Call it optimism or simply not having a genuine interest in Android phones, nor iPhones, I see the potential for RIM being able to strengthen its financials. This largely hinges on a newer BlackBerry, nicknamed BB10, that the company has coming out. It also will unveil two new tablets. If these flop, the company's challenges will be compounded and its future will be clouded further.

The report I am referencing came from comScore, a researcher of digital business analytics. It found that Samsung captured a quarter of the market share as the top handset manufacturer in the U.S. Furthermore, Google Android, according to comScore, continued to grow its share in the U.S. smartphone market, "crossing the 50% threshold in February to capture a majority share for the first time in its history." The study covered a three-month period that ended in February. Roughly 30,000 smartphone subscribers were surveyed.

This report also found that of Google, Apple and RIM, Google's percentage share of smartphone subscribers had increased the most of all the others from November 2011 through February 2012. It had grown from 46.9% to 50.1%. Apple increased 1.5 percentage points to 30.2% from 28.7%. RIM trailed the two, losing 3.2 percentage points by dropping from 16.6% to 13.4%.

It is a particularly troubling sign to see RIM losing market share considering the number of wireless phone subscribers is increasing. I believe that its loss is largely due to its products not being as trendy and appealing, yet alone innovative, as the iPhone and Android devices.

Revenue for the 2012 fiscal year, which ended on March 3, was $18.4 billion, down 7% from $19.9 billion in fiscal 2011. In its fourth quarter earnings report for fiscal 2012, RIM reported that revenue was down 19% to $4.2 billion. It was down 25% from the $5.6 billion it reported in the same quarter of fiscal 2011. The decline was largely due to a drop in the sales of the BlackBerry.

When it announced its fiscal 2012 fourth quarter earnings, RIM also said it expected its revenues and earnings to continue to be under pressure throughout fiscal 2013. The company cited the weakness in the smartphone business in the U.S as the reason.

Last year, RIM's suffered a global outage for its BlackBerries that lasted four days. In its earnings report, it conceded that the snafu cost it $54 million in service revenue and the payment of service credits. This was a telltale sign of the company's stability. Although the outage only last four days, many customers abandoned their BlackBerries and jumped to iPhones and Android phones. I think some of them were just looking for a reason to get rid of their BlackBerries, however, just as many more had just grown wary of their seemingly behind-the-times devices.

All of these factors have prompted RIMM to cease providing specific quantitative guidance. That's worrisome. I think the company attempted to mitigate this news by saying it will be focusing on selling BlackBerry 7 smartphones to grow the subscriber base in advance of the BlackBerry 10 launch.

BB10 will join a laundry list of smartphones made by companies that are trying to role out innovative products that can help them keep their existing customers or lieu new ones.

So, a lot of hope is being placed on the BlackBerry 10, a device that is to be the new version of the BlackBerry OS. There is no exact release date yet, which is even more worrisome.

When it is rolled out, BB10 will contend with one new device in particular which is receiving alot of hype. It is the Lumia 900 from Nokia (NOK). Nokia and AT&T (T) plan to begin selling it this month. Its main draw is its price of $99.99. Nokia is in a similar rocky boat to RIM. However, unlike RIM, its new smartphone is being marketed as heavily by AT&T as it is being marketed by Nokia.

RIM has long been able to depend on corporations to dole out BlackBerries to its professional employees because of the devices' reliability. In fact, workers grew to like the product so much that they began to demand it over other models. I remember when BlackBerries' main competition was Palm! We know what happened to them because they couldn't produce phones that could compete with the new smartphones.

Many of RIM's loyal followers are anxiously looking forward to the BB10. If it disappoints, RIM's financial situation will be further aggravated.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.