Global Smartphone Trends Leave Little Room For RIM

| About: BlackBerry Ltd. (BB)
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The global smartphone market has been experiencing explosive growth for the last several years. Competition has remained fierce all throughout, but the numbers don't lie. Two technology titans dominate the market, taking a whopping 92% of market share for themselves. These two companies are Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL). Data regarding smartphone sales during Q4 2012 has come out during the last several days, evidencing how much people all over the globe want to get their hands on a smartphone. After a quick look at the information, it becomes evident that the high-end phone market is a one of the most extreme oligopolies of the 21st century. With the release of Blackberry 10 just two days away, investors are starting to ask if there really is any room left for Research In Motion's (RIMM) latest offering.

Smartphones are flying off the shelves. According to Strategy Analytics, global smartphone shipments have increased from 490.5 million during 2011 to 700.1 million during 2012, which is roughly 30% growth year-over-year. If anything, there is room for disruption within the industry: people will keep buying more phones. As the market grows, however, so does Android's market share: Android went from having 48.7% of the market in 2011 to a whopping 70.1% in Q4 2012. Apple's iOS has also grown slightly, capturing 22% of the market share by the end of the same period. How much is there left for everyone else? As of Q4 2012, a meager 7.9%.

The thing about market share is that it is liable to change rapidly in a rapidly growing market. Since global smartphone sales went up 30% in the last year, there is no reason for it to grow a similar amount this year. The world is still far from saturated in terms of smartphones. It is interesting to note, however, that regions that have had smartphones for longer are actually starting to become saturated. Global shipment growth declined from 64% to 43% 2011 to 2012. This is a sign of a reversing trend. Regions with long-time smartphone users are buying fewer smartphones since more people actually have them to begin with. In these regions, people also tend to purchase more high-end smartphones, including the more expensive Android variants and the iPhone.

As I mentioned in a previous article, RIMM is trying to enter the high-end smartphone market; instead of beating its competitors out on price, it wants to offer a genuinely quality product that the most tech-savvy consumer would be happy to purchase. This part of the market is by far the most cutthroat, and also the slowest growing. The reason that Android is getting so popular is because Google is offering phones in every price range - you can get an Android smartphone for as little as $1 with a two-year contract. And people are buying. The lower end of the market is what's pushing sales growth. Only in the most mature markets, such as the US, are people itching to buy the most expensive handset. Research In Motion is trying to sell you an expensive smartphone with a high margin, but it doesn't realize that it's competing against the most entrenched players imaginable.

What does this mean? It means that RIM is choosing to take on the biggest players on the field. The question is, how is a ~$8 billion market cap company going to take on titans like Apple and Google? Their marketing will be subpar, and their research and development department doesn't bleed money like the competition. The part of the market that RIM is choosing to enter will not grow much, and RIM will face vicious competitors from every angle. Looking at the situation, it almost seems like RIM chose the wrong way to play, and will suffer for it. There isn't room in the lucrative high-end smartphone market for small fry; expect Blackberry 10 sales to be weak, and for the stock price to react accordingly.


I am short RIMM. 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.