Verizon, iPhone, And RIM

I live in Menlo Park, California, just off the famed VC hub, Sand Hill Road. AT&T’s cellular network is downright pathetic around here, but Verizon’s is excellent. Dominique, my husband, is on iPhone/AT&T, while I am on BlackBerry/Verizon. He has the better phone; I have the better network. But soon, that may change.

The Wall Street Journal reported recently that Apple is working on a CDMA iPhone. This has led to speculation that Apple’s exclusive relationship with AT&T might end and the iPhone could be available on CDMA carrier Verizon. In this post, let’s take a look at how it affects one of the iPhone’s main rivals, BlackBerry maker Research in Motion (RIM) (NASDAQ:RIMM).

It is not as though the BlackBerry would be coming face to face with the iPhone for the first time on Verizon. The BlackBerry is available on both AT&T and Verizon. However, Verizon is the major carrier for RIM – it shipped 3.3 million BlackBerries in the last quarter compared to 3.1 million iPhones at AT&T. According to IDC, RIM had 19.8% smartphone market share in 2009 versus 15.6% in 2008, a growth of 46.2%. Apple, on the other hand, grew 81.9% from 9.1% in 2008 to 14.4% in 2009. Since the arrival of the iPhone on AT&T, RIM’s market share hasn’t been sliding but on the contrary it has been gaining share although not as fast as Apple. And the Verizon move would further accelerate Apple’s growth.

The BlackBerry is popular with corporate customers mainly because of its killer push email feature. RIM has also been able to attract non-enterprise customers. A rising new target market for BlackBerry is tech-centric youth segment that is attracted to the ease of typing on its QWERTY keyboard. RIM is also trying hard to attract first-time smartphone users and build lifelong loyalty in them.

RIM is also doing well in international markets. In the recently reported fourth quarter, 48% of its revenue and 38% of its customer base came from outside North America. Latin America in particular has shown strong growth, and the company has announced plans to include a manufacturing facility in Brazil.

This week, RIM reported disappointing fourth quarter results. Revenue was $4.08 billion, up 18% y-o-y and 4% q-o-q  on a shipment of about 10.5 million devices but missed its forecast of $4.2 to $4.4 billion. It added about 4.9 million net new BlackBerry subscriber accounts in the quarter, and the total customer base is over 41 million. For the full fiscal year 2010, total revenue was up 35% to $14.95 billion and net income was up 29.8% to $2.46 billion, or $4.31 per share. Net income for the quarter was $710.1 million or $1.27 per share versus $518.3 million, or $0.90 per share last year and $628.4 million, or $1.10 per share last quarter. Q3 coverage is available here.

Analysts believe that a higher mix of lower priced BlackBerries have led to the disappointing sales figures. Gross margin for the fourth quarter was 45.7% compared to 42.7% in the prior quarter. RIM ended the year with a cash balance of $2.87 billion. Last week, RIM acquired Viigo, a leading software developer that brings real-time content for smart phones.

For the first quarter of fiscal 2011, RIM expects revenue of $4.25 billion–$4.45 billion, EPS of $1.31 –$1.38, and gross margin of 44.5%. It expects BlackBerry smartphone shipments of 11.2 million-11.8 million and net subscriber account additions of 4.9 million–5.2 million. The stock has dipped to about $68 as Goldman Sachs downgraded it to Sell from Neutral on concerns about lower demand in North America and the looming threat from an iPhone on Verizon. Its 52-week high was $83.77 on June 10 last year.

Finally, according to another Wall Street Journal report, a Verizon iPhone is not likely till 2011. That would buy RIM some time before Apple catches up.