ANALYSIS: RIM Q1 Results Are Horrid - Blackberry in Tailspin

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.