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Research In Motion (RIMM +5.2%) ended up giving back a large chunk of the gains it initially saw...
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Friday, September 28, 2012, 5:33 PM ETResearch In Motion (RIMM +5.2%) ended up giving back a large chunk of the gains it initially saw following yesterday afternoon's FQ2 beat. Few on the Street who are pessimistic about RIM's future seem to have changed their minds on account of the report, and many are quick to mention BlackBerry sales have become increasingly reliant on less mature, cost-sensitive markets. (more) (transcript)
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Secondly 4/5ths of the world does not a smart phone so if they do some decent penetration in those areas of the world they can build a business out of that. The US is a replacement market war.
The tougher part of growing sales in other parts of the world is the infrastructure. Many places are not even at a 3G infrastructure level, and even fewer have 4G available. The economic slowdown in Europe is also not helping developed market sales for any company.
That said, the fact that the market share of their old models is increasing is encouraging, and the potential market for those wanting basic phones is far larger than for those who must have the latest model, even if the profit margin isn't so sexy! It's still worth buying if you've got the readies, but I'm going to wait, as I can see prices dropping over the next few months.
RIMM had some figures on older models not long ago, presented during a conference call. Since they know which BlackBerry phones are in use on their systems, they were able to put together user base figures. More than half were on older BB5 and BB6 devices. This implies that many are beyond the two year contract period. A few research studies indicate about 40% to 70% of BlackBerry users get another BlackBerry. BB10 is a big change, and some current BlackBerry users may wait to see some user feedback prior to upgrading.
The implied data metric suggests a potential of 32 million or more global BB10 device sales in 2013. This would be an upper target, but only based upon replacement, and not continued growth in smartphones. With much growth in emerging markets, and no lower cost BB10 devices until the end of 2013, that potential may not be seen. Low volume estimate, based upon a smaller upgrade market, and barely 1% growth from overall smartphone adoption growth, may mean barely 6 million handsets. That suggests RIMM may do no better than NOK in 2013. Even at the upper potential on sales, RIMM would be behind Apple and Samsung, though still safely ahead of Sony, LG, and several other lower tier Android vendors.
Believe that it was a Citi analyst who said that February 2013 was the time when many phones in the U.S. went off-contract and that was the point where he thought the service revenues would begin to plunge. I don't know if the analyst was right but it made some sense that was the time the business could start to really hemorrhage cash. Obviously they hope BB10 will be there in time but that doesn't mean the contract information wouldn't be very interesting to review.
I have enough data to write an article, but I have no interest in writing an article at this point in time. I still consider RIMM a very speculative investment. My recommendation is to avoid investing in RIMM, until a clear indication of BB10 sales volume appears. Regular investors should avoid RIMM until at least Q4 2013.
Probably of different value was information released by RIMM during a conference call, in which they gave percentages for BB5 and BB6 users within their user base. The implied message was that those users might upgrade. However, details were not released. If those BB5 and BB6 users were corporate, then I doubt most corporations would immediately switch to a BB10 device roll-out. If those users were pre-pay, or lower tier, then the initial mid to high level BB10 devices are unlikely to see conversion. The implied message is that the first full quarter of BB10 sales may not be that great.
I'm not sure what the Citi analyst was looking at for data. Offhand I would think he saw some corporate contracts for fleet phones. Corporate users are only a subset of BlackBerry users, based upon data released by RIMM; they are not the majority of users. Service sales and handset sales both increased on a percentage basis in India, for example, which implies that a large portion are corporate purchases. As for the accuracy of Citi analysts, they have been wrong numerous times with currencies, though I tend not to follow them for equities.
I would not look to U.S. smartphone sales any longer as a gauge of potential, and that goes for any smartphone vendor. The U.S. market is near saturation. Growth will need to come from China and other emerging markets, all of which are more price sensitive than the U.S. Revenues will need to come from services or app store sales. User base will become more important moving forward, since that will be the predictor of future revenues beyond selling handsets.
Certainly a very speculative investment but I tend to think the downside is limited to 30-50% Nothing to base that on other than a Credit Suisse analysis and a shallow analysis of the balance sheet. I recognize that they have unbooked liabilities relating to their businesses should they be required to exit certain segments but it is arguably an opportunity to invest in a start-up given how cheap the shares have become. For sure not one to bet the house on.
http://bit.ly/PuhkXr
I got a chance to watch that video prior to it getting pulled. The devices appeared to be rendered through green screen, and not actual devices. Of more interest is the marketing pitch that was in that. RIMM appear to be considering using celebrity connections to promote future BlackBerry devices. Since celebrities are still quite popular trendsetters in the US, UK, and Europe, ti's an interesting choice. However, this might have been an idea pitch, and not an actual development of an ad campaign. In the US, BlackBerry is mostly a dead brand, which means many US investors will not even glance at RIMM. There is also a lack of name recognition, in that the average person does not know that RIMM = BlackBerry. Obviously the company has much work ahead of it. This is what I mean with the "start-up" analogy, in that the company need to create awareness where there is now none. Don't expect improvement anytime soon.
On the topic of analyst, they have no clue about RIM. Your start up analogy is bang on, a new OS and 80+ million subscribers, not a bad start up.