RIM Looks Grim

According to market research, in August of this year BlackBerry manufacturer RIM’s market share of the U.S. smartphone market fell from 11.4% a year ago to 8.3%. RIM may have managed to retain the third position in the market and is far ahead of Microsoft’s 3.6% market share. But it still has a big gap to overcome if it plans to contend with the second largest player in the market. Google’s Android phones commanded 52.6% of the U.S. smartphone market, and Apple saw its share grow from 31.9% to 34.3% in August. RIM may be counting on the BlackBerry 10 to pull it out of the rut. However, given the current gap in market share, that would be quite a challenge.

RIM’s Financials
Surprisingly, RIM’s (Nasdaq:RIMM) Q2 performance managed to surpass market expectations. Revenues of $2.9 billion for the quarter were ahead of the Street’s targeted $2.49 billion despite even though the declined 37% over the year. Net loss of $0.45 was also better than the market’s projected net loss of $0.47 per share.

The company continued to see declining sales of its BlackBerry smartphones. Shipments for the quarter fell 30% to 7.4 million as RIM continued to lose market share to Apple’s iPhone and Google’s Android phones in the North American markets.

RIM expects to continue to incur operating losses during the current quarter and the rest of the fiscal year because of to increased marketing spending for the March quarter launch of its BlackBerry 10-based devices and continued decline in sales of existing devices.

Increased Sales in the International Markets
RIM is counting on its performance in international markets to counter the declining North American sales. During the last quarter, RIM earned 8% of their revenues from Canada, 22% from the U.S. and 12% from the U.K. markets. The rest of the world accounted for a majority 58% of their quarter’s revenues.

They have increased sales efforts in the emerging markets, especially in the Middle East and South Africa. Earlier this year, they introduced several new phone models in the emerging economies. For instance, they launched the BlackBerry Curve 9220 in India and four new phones operating on the BlackBerry 7 OS in Cambodia in April this year. In March it tied up with China Unicom to launch BlackBerry services for consumers in China. It also opened its BlackBerry App World app store to customers in the Middle Eastern nation of Brunei.

RIM claims to be witnessing an improvement in subscriber base in these regions. For now, though, the increasing subscriber base in these regions is not translating to increased revenues. Consumers in emerging markets are more price conscious and RIM is successfully targeting the consumer segment that is looking for smartphone options that are less expensive than the iPhone. While that is helping RIM grow the sales volume, they are hurting the average revenue per subscriber. The positive traction in “markets such as South Africa, Saudi Arabia, the United Kingdom and Indonesia,” is accompanied by the a decline in revenues from these regions. Over the year, revenues from regions other than the U.S., Canada and the U.K. have fallen from $2.33 million a year ago to $1.67 million this quarter.

BB10 to save RIM from Its Fall?
RIM’s hopes remain pinned on the first quarter launch of BlackBerry 10. RIM is so sure of the success of the new phone that it has even guaranteed app developers for the BB10 OS that if the app developers are unable to make $10,000 during their first year, RIM will pay the difference. But BB10 is still a few months away from launch. Analysts believe that while the phone may help RIM compete with iPhone and Android-based smartphones, it will still be quite a battle for it to come ahead of these phones in gaining market share.

The stock is trading at $7.83, with a market capitalization of $4.1 billion. It touched a 52-week high of $23.90 in October 2011. The stock has made a minor recovery since it touched a ten-year low of $6.22 last month.