We start the Smartphone Bloodbath Year 3: Digital Jamboree. First company out the gate is RIM, the maker of the Blackberry and their first quarter results. Fourth Quarter results looked like Blackberry had gotten its mojo back, growing 33% from the third quarter (slightly faster than the industry even) and looked like its market share had stabilized at 9%, down from its peak of 21% back in 3Q 2009. It has been a steady decline since.
By the first quarter of 2010 Blackberry had 18% of the global market. A year later (1Q 2011) RIM was down to 14%. For the calendar first quarter of 2012 – RIM sold 11.1 million smartphones, and that is about 7% market share.
First a quick note to the smartphone stats. I am modeling a 3% rise in smartphone shipments (4Q’11 to 1Q’12) fuelled by the Chinese New Year sales which was two weeks earlier than usual – I am projecting 160 million smartphones shipped. We will not know the actual number as per usual, until each of the big 4 handset industry analyst houses report (Gartner, IDC, Canalys and Strategy Analytics). Their numbers are expected around first week of April.
BLACKBERRY OVER THE CLIFF
Secondly, obviously, Blackberry’s temporary stabilization turns out to have been an illusion. The sales of Blackberries for Christmas was maybe some corporate/enterprise customers using some end-of-year budgets to replenish handsets, and in some markets parents buying Blackberries for their kids as Christmas presents. But since then, the BB sales have fallen off a cliff. In fact, if you liked my hypothesis of The Cliff Theory of how handset makers die, now Blackberry’s one year performance fits dangerously the pattern identified in The Cliff. RIM’s market share dropped by 50% over a 12 month period. While my theory has so far only looked at annual sales numbers, not quarterly sales numbers, this is nonetheless a very dangerous sign for RIM.
The other part my theory of The Cliff suggests, is that in the desperate moves a handset maker tries to recover, it will inevitably go from making profits to making losses. That has just now happened also at RIM, they reported their first quarterly loss. This is VERY bad news and promises VERY bad coming months. The company is in a tailspin.
RIM Blackberry P9981 by Porsche Design – Is this $2000 phone a profitable project for RIM or just a vanity product?
Consider. Just one year ago, for the full year 2010, RIM was the world’s second largest smartphone manufacturer (by units shipped). RIM sold 48 million Blackberries vs. third place Apple with 47.5 million iPhones. RIM had grown 39% in size from the year before and was very profitable. Last year 2011 that growth stalled to only 9%, and RIM fell from 2nd biggest smartphone maker to fourth, with 11% market share. Now compared first quarter 2012 to the same period in 2011, RIM’s actual shipment number is down! Blackberry global shipments are down 23% in one year while the industry itself grew 63% in the same period.
Obviously, the true danger-sign that all bets are now off at RIM, is when a profit-generating smartphone maker turns into a loss-maker. This is arguably the beginning of the end. If ‘The Cliff’ theory holds, RIM will fall to 3.5% size over the next 12 months (or worse) and will be gone from the market as an independent smartphone maker within 24 months. Could be much faster, as we heard already from the new management at RIM that they are seeking partners (read: trying to sell the company, or parts of the company, or get an investor or partner).
IS RIM’S RECOVERY STRATEGY THE RIGHT ONE?
RIM’s new management promises to return to its roots more. The early news stories that Blackberry is abandoning the consumer market proved to be misreported, but the company is trying to reorient to focus more on the enterprise/corporate segment (while not abandoning the consumer market). And they continue with their tablets. This is all bad news. Blackberry owned the enterprise/corporate market in North America but that market has been eroded as enterprise/corporate customers are increasingly willing to allow employees to use their own phones – very often iPhones in the USA but increasingly also Android devices. In the rest of the world, Blackberry was not strong in the enterprise sector.
The worse news is that there is a steady trickle of major enterprise/corporate/government clients who are switching completely away from Blackberry and (usually) to the iPhone. RIM will find it increasingly hard to even stabilize the market in the enterprise/corporate sector in those countries where it is relatively strong and find it hard to crack new markets in this sector.
Meanwhile the enterprise/corporate sector, especially in the Industrialized World – is nearly fully saturated in smartphones. There is almost no growth in this sector. Yes, RIM can find replacement sales here, but even if every existing Blackberry is replaced 1 to 1 by another Blackberry, it would mean Blackberry’s global market share would erode from the current 7% to about 4%-5% within a year (assuming the rest of Blackberry sales would not fall). No matter how you spin it, if the primary focus of RIM will be the enterprise/corporate sector this year, it means Blackberry’s market share will continue to fall dramatically, and that means very bad news every quarter.
The growth in smartphones is with the consumer market; and even that is becoming saturated over the next few years in the Industrialized World. Here in some of the most advanced Asia-Pacific countries like Singapore, Australia, Hong Kong, UAE etc – the proportion of smartphones out of all new mobile phones sold is well past 80%. In Western Europe it is past 70% and in the USA it is well past 60%.
The growth opportunity is mostly in the Emerging World markets where about half of all smartphones will be sold this year. Out of all active mobile phone accounts, 80% are in the Emerging World countries and only one in five is in ‘the West’ i.e. the Industrialized World countries. For the Emerging World, we need lower-cost smartphones near the 100 dollar price (without subsidy included). The average Blackberry device costs over 300 dollars and is priced far too high to be a mass market proposition in most of the Emerging World markets.
Blackberry did have strong success in many surprising Emerging World markets from Indonesia to Nigeria to Venezuela but RIM seems not to have been able to fully capitalize on that and to spread into the rest of the world. There are many countries where the Blackberry is not strongly welcome by the carriers/operators (like China) or where the local regulators are concerned about the level of ‘too much’ security on the Blackberry service (like several countries in the Middle East and Asia). These all have hurt Blackberry’s chances.
Of course, there is the added pain of having launched the tablet which does not support Blackberry’s other business well and has been an enormous drain on RIM’s profitability while selling in modest numbers only, compared to the market dominant iPad.
RIM found a sweet spot with teenagers, but the company was slow to profit on the trend. Photo: The Uptown Girl
I explained in my Blackberry analysis last year, that RIM also suffers a problem related to the youth market segment. The youth do love their Blackberries (‘feeding the BeeBee’ as they say in Britain when they send BBM messages) but the addiction is more to the BBM messenger service than the device. Any old Blackberry can be used to send BBM instant messages, so once a teenager has any old Blackberry device, that is enough. Then as the Blackberry typically is not the most advanced phone by screen or camera or web browser or app store selection etc., the youth will happily replace their ‘other’ phone with something new, but keep the old Blackberry.
That is why Blackberry has a far slower replacement cycle than the smartphone industry overall. This further means less handsets sold – compared to the industry average – per year than the rivals. It means a loss in market share when measuring new handsets sold. More bad news to come in the coming months.
NO LIGHT AT THE END OF THE TUNNEL
In short, this is the worst quarterly results from RIM and while it was up and down several times last two years in the results, this is now both a giant drop in market share, and the first time RIM goes from generating profits to generating a loss. I think we’ve seen another giant fall off a Cliff. How astonishing, RIM was the world’s second largest smartphone maker just over a year ago. How fast they can fall in this volatile industry. Keep tuned for more in Smartphone Bloodbath Year 3: Digital Jamboree.