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RIM (RIMM) is under pressure from mobile phone companies, including AT&T (T) and Verizon...

RIM (RIMM) is under pressure from mobile phone companies, including AT&T (T) and Verizon Wireless (VZ, VOD), to cut carrier fees. It's a real pain point for RIM, as the fees generate $4.1B annually and account for more than a third of the BlackBerry maker's revenue. Analysts say that figure could drop to $2.8B in FY'14.
Comments (28)
  • RIMM is DOA.
    4 Jul 2012, 09:13 AM Reply Like
  • someone somewhere is waiting for the right moment to pounce, whether the strategy will be successful or a waste of money only time will tell
    4 Jul 2012, 09:27 AM Reply Like
  • As long as RIM can provide customers an added value, they should not have to cut carrier fees. To call RIM doa is rather premature, especially considering they have enough money in the bank to continue for a year or two. Everything hinges on the BB10 being a superior phone. Nothing will be clear with RIM until that phone comes out, and if it is good enough and sells well.
    4 Jul 2012, 12:34 PM Reply Like
  • It's not only that, they also have to catch up on the app side of things. If they can't get the same quality of apps then they really are DOA.
    4 Jul 2012, 02:25 PM Reply Like
  • That may become one of the BB10 launch expenses. Much like MSFT is paying some developers to launch on Windows Phone 8, RIMM may need to go that extra step and pay for certain popular apps.

     

    http://seekingalpha.co...

     

    In that article the first chart shows the percentage of the top 300 apps that are available in the various smartphone operating system stores. Keep in mind this is for the previous BB6 and BB7 devices, because BB10 has not launched. Also, developing and porting apps are becoming easier due to some new tools, which is a trend I feel needs to continue. Games may always stay as native code written, to optimize per platform, but some other content may not benefit from the extra programming effort.
    4 Jul 2012, 03:59 PM Reply Like
  • I think that's likely too.

     

    It's going to be difficult for RIM to get users back now that they've had experiences with other companies. It's not going to be enough to provide a similar product. They'll need to add something new. BBM isn't going to be enough.
    4 Jul 2012, 04:31 PM Reply Like
  • It is not a matter of getting users back, with a still growing smartphone market. The real trick is attracting new users. We are not yet at a saturation point in the global smartphone market. Some people treat the smartphone market like it is mature and no more growth is possible, but I do not think growth will level out until 2015/2016 time frame. Any company selling smartphones has from this year until that point in time to carve out a niche.

     

    Beyond 2015/2016 smartphones will become a replacement market, with upgrades likely only every two or so years. Companies that rely upon handset sales may find it difficult beyond that point. Companies with other revenue streams may fiar better, because they will have sources of continued revenues. Of course by that point we may see another technology shift, perhaps even more devices like Google Glass, and people might even move away from smartphones, but no one can predict accurately that far into the future.
    4 Jul 2012, 04:52 PM Reply Like
  • Perhaps, but do you see that as making my point, having to add something new in order to compete, moot?
    4 Jul 2012, 04:53 PM Reply Like
  • Business users may stick to BlackBerry due to the constant e-mail addiction, but that is only around 20 million of the user base. BBM users account for 56 million of the 78 million user base, with most of those being in emerging markets.

     

    There have been very few leaks of what is planned. There was a video of beaming content to televisions, but no explanation of how that is accomplished. This might be similar to Windows SmartGlass, or some other technology, though I cannot imagine how to accomplish that without another piece of hardware.

     

    Obsolete BB7 is still outselling Windows Phone 7, though arguably that is just a tarted up version of Windows CE. Both MSFT and RIMM have to offer something different, but does different sell smartphones?

     

    http://seekingalpha.co...

     

    In that article I point out some challenges. Both Windows Phone 8 and BB10 are targeting active multi-tasking and content management. I suspect some people may find that attractive. However, current usage information on existing smartphones indicate that most consumers do one thing at a time, and do not multi-task. So the trick for MSFT and RIMM is to convince enough people to do more with their smartphones, and to learn a few steps in order to do that. Some of the gestures are not immediately intuitive. It is easy to just look for an icon and touch it once, then shut that app down when you want to do something else; slow in use, but simple. Recall that AOL got many people onto the internet because it was simple. Both AAPL and GOOG understand that a simple to use system gets people onto smartphones. In some ways Windows Phone 8 and the Metro User Interface do simplify the first view, but multi-tasking is complex. BB10 appears to function in a similar manner, with the most used tiles being very prominent. So the big question for both companies is how large a segment of the smartphone world want to multi-task and how many want one-app-at-a-time.
    4 Jul 2012, 05:09 PM Reply Like
  • HH

     

    The smartphone market is not mature but then again neither is the global softdrink market but nobody is expecting any serious challengers to Coke and Pepsi. Brand and economies of scale are taking over the business along with very comprehensive ecosystems that take a long time and a lot of people to develop.

     

    Think of the final maturity years in the PC market as a model. The global market was not mature but many large players were getting out like IBM and it was boiling down to a few players who had their supply chain optimized and did not have execution problems.

     

    Execution problems are death in the final phases of market maturity. Even established companies without execution issues have a hard time surviving.

     

    GOOG and AAPL have tons of capital to constantly out innovate RIM and just bury them on price to value and in GOOG's case just price.
    4 Jul 2012, 09:13 PM Reply Like
  • It is possible the smartphone market morphs into a model of the computer market. That supposes that the main reliance will be upon third party software, or perhaps a mobile version of MSFT Office. I think it is too early to tell if the smartphone market follows this route, or mirrors the television market.

     

    I never expect any third tier nor fourth tier smartphone vendor to make a dent in the market. The real driver of future smartphones, in my opinion is two things. First is mobile browsing, which is becoming more viable with near HD screen resolution and physically larger devices. The second thing is the gaming market, because that is becoming the most used third party software on devices.

     

    I wonder how long smartphone vendors will stick with "free" Android when they are not generating profits. The idea as put forward by some is that only two companies can survive, which implies that every company except Samsung and Apple will leave the smartphone segment. There are still more BlackBerry smartphones sold and in use than LG, HTC, or Sony, which begs the question of why they make smartphones at all, and also begs the question of which of those companies will simply shutdown their smartphone businesses.

     

    So will the smartphone market eventually be just Samsung and Apple? When will that happen? These are implications beyond RIMM, because the troubles they face are also relevant to every other vendor of smartphones that sells at a lower volume. Who dies first is an open question, but if RIMM dies, then many companies are not far behind in leaving the segment entirely.
    4 Jul 2012, 11:37 PM Reply Like
  • I'm a bit confused by what you meant by "I wonder how long smartphone vendors will stick with "free" Android when they are not generating profits. ".

     

    All of the companies you mentioned were profitable to the best of my knowledge though I haven't been paying too much attention so I'm open to correction on that. They'll continue to make phones as long as they remain profitable I'd expect.

     

    It's rim and Nokia I'd expect to disappear before those manufacturers. For the android adopters android has given them, as hardware companies, a competitive OS for free (customisation aide) which they may otherwise have struggled to do, as Nokia and Rim attempted or are attempting to do without much success.
    5 Jul 2012, 04:25 AM Reply Like
  • vis a vis apps, Playbook already runs Android apps, and there has been some evidence of iOS apps functioning on Playbook as well.

     

    RIM may be able to bypass that issue entirely. I don't believe that is its primary source of trouble anymore.

     

    The devices available now continue to underperform in key areas against the competition.
    5 Jul 2012, 09:46 AM Reply Like
  • HH

     

    I don't believe the TV industry is the model. The distribution model is different and more importantly the technology cycles are much tighter today and more vicious to laggards.

     

    I would say there is room for only 2 to 3 mobile device makers and Apple and GOOG will be dominant. A third could hang around if they have something cool/unique and have the ecosystem and distribution channels to get it to the consumer. That could be RIM but their execution is really pathetic so not sure. There could also be a number of solution providers who package the phones with applications and networks. I don't view them as device makers. And there will be companies that make components. You could break this business down in layers just like the PC business.

     

    I do expect at some point that politicians will get involved in this space as it collapses to very few device makers and Apple looks so tightly coupled from the top to the bottom.

     

    Every device maker is getting crushed right now as Apple is taking 73% of the industry profits. It really does not matter what they are making if they cannot sell it at a profit. Networks are paying Apple for market share and the devices sell at higher price points. And now the networks want RIMM to cut their revenue on their network. This is also a sign of a weak player. They are getting kicked around by everyone.
    5 Jul 2012, 10:40 AM Reply Like
  • The streaming to TV has to do with DLNA http://www.dlna.org
    5 Jul 2012, 11:05 AM Reply Like
  • That is true kmi, and if the BB10 is as powerful and feature rich as it appears to be, then it still has a chance to be a big winner for RIM.
    5 Jul 2012, 11:10 AM Reply Like
  • Thanks for the link. Seems like it begs the question of why bother with Microsoft SmartGlass, which does not appear to add much more function.
    5 Jul 2012, 01:37 PM Reply Like
  • LG also make feature phones, and screens for other vendors mobile phones. Smartphones for LG have not been good sellers at this point. They generate more profit from components. Sony has yet to be profitable from Android smartphones.

     

    http://bloom.bg/M7DkER

     

    HTC's profit margin has declined to about 12.8% recently. Perhaps they will do better with Windows Phone 8. HTC also pay MSFT about $5 per Android smartphone. There are similar arrangements MSFT has with other "free" Android vendors.

     

    NOK still sell more Symbian devices and Series 40 feature phones than they do Windows Phone. At the moment it is tough to tell if Windows Phone 8 can lead NOK to profitability. Nokia is in worse shape than RIMM despite appearing to have a head start on changing their operating system. I would expect NOK to go under first.
    5 Jul 2012, 01:47 PM Reply Like
  • The carriers do not appear to want only two primary smartphone systems. We can see a little of that in the push for Windows Phone, but I suspect that the new Mozilla Mobile could gain some traction too.

     

    Outside of games, it is tough to create a software model for mobile. The profits are not there except for a few players. The best way to monetize m-commerce appears to be through mobile browsing and mobile search, hence all the recent changes announced for mapping, and moves to push out Google from other devices. There is no app economy for the majority of developers. Average app revenues are running nearly eight times below development expenses.

     

    Moves towards HTML5 and more standards based content delivery are slowly changing smartphones. Games will likely always be apps, but then smartphones may go more towards the model seen in the game console sector. As Steve Jobs stated years ago, you cannot control the content distribution system.

     

    If the profits do not come, then the companies may not stick with it. The only trouble in how that plays out can be seen by how the digital camera market evolved. Some companies were willing to forgo profits in order to increase market penetration.

     

    Right now a big segment of the market is betting on RIMM not surviving. If the majority really did think the company would not survive, then shares would drop below 1.00 and the company would be forced to delist. Near term options volume is stacked around the 7.00 and 8.00 strikes.
    5 Jul 2012, 01:59 PM Reply Like
  • The problem is that a future BlackBerry could just be a "me-too" device, and not enough different than lower priced Android smartphones. While software and services revenues continue to be profitable for RIMM, it remains to be seen if handheld devices can be profitable next year.
    5 Jul 2012, 02:01 PM Reply Like
  • Very true HH. But I suspect that the BB10 will be closer to the top end Android phones (G III for example) with some unique and powerful features. By now, RIM must be aware that they need a killer phone to dig themselves out of their self made hole.
    5 Jul 2012, 04:21 PM Reply Like
  • Well a big segment also thought Bear Stearns and Fannie and Freddie Mac were going to survive also until they did not.

     

    The real question is whether RIM has a competitive business model relative to other choices. Whatever you answer for that says a lot about their future.
    5 Jul 2012, 06:11 PM Reply Like
  • The only unique aspect of the RIMM business model is the back-end infrastructure, which is now about a third of revenues, and much higher profit margins than handset sales. This could be a stable long term source of revenue, but not a strong growth area. If software and services were all RIMM did in the future, then the company would need to drastically downsize to profit from that business model. Several years ago they were profitable with a much smaller user base, but they did not have as huge an employee base.

     

    http://bit.ly/N063MC

     

    Some commenting like to claim that e-mail locks people into BlackBerry smartphones, but a look at trends in that link indicates that is barely 30% of users. So imagine if that was the only reason 78 million users stay with BlackBerry, and that would mean around 24 million users. The other factor in this is that the Microsoft Exchange Server software now handles e-mail better, and may become more of a competitor to RIMM in the future for mobile e-mail.

     

    Mostly consumers do not care about security, don't need fast e-mail delivery, and have little need to remotely manage hand held devices. Going back to the bottled water analogy, smartphones for consumers are about consuming mobile content, like news of web browsing, taking photos, accessing social networks, and playing games. As all smartphones move to address those trends somewhat equally, brand names and the physical appearance of the next smartphones will become more important.

     

    http://bit.ly/O0Zadv

     

    So BlackBerry is now a tarnished brand name. There are some faithful to the platform, but I suspect the brand loyalty will wane with the delay in BB10. If we put it near 60%, then the user base could decline to 46 million users, near 2010 overall levels.

     

    Downsize too much and I don't see how RIMM could avoid takeover, either for the back-end infrastructure, or to shut down the unique aspect of the business. I don't see how anyone can make a case for future growth, given what we know now. Until BB10 devices launch and go through a few quarters of sales data, I think most long term investors will stay away.
    5 Jul 2012, 07:27 PM Reply Like
  • Agree with what you say.

     

    As an operating concern they should try to get back to revenue per employee that they did in the past and shed all business that is draining capital. My spreadsheet shows they need to cut employees in half at minimum to get that done. I am sure with co-CEO's there is a lot of redundancy and fiefdoms built and that all needs to be torn down.

     

    At the same time they need to define who they are going forward and why does anyone care? And why are they good at it or special and can they make any money at it? A device story just is not enough and nobody knows if they can make any money with BB10 no matter how great or not great it might be. Delays only raise the price point of the device so this is more serious than just missing a date.
    5 Jul 2012, 09:21 PM Reply Like
  • they need climbing gear to get out of this hole they dug and fell into.....
    8 Jul 2012, 11:33 AM Reply Like
  • They're working on it. Haven't you heard? It's called the BB10.
    8 Jul 2012, 11:46 AM Reply Like
  • I ve heard about bigfoot also but never seen one....
    8 Jul 2012, 12:30 PM Reply Like
  • Just need to look a little harder.
    8 Jul 2012, 10:01 PM Reply Like
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