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RIM Banks on BlackBerry 10

Posted on Tuesday, Jan 15th 2013

According to an IDC report released recently, the global mobile market is estimated to record growth of a mere 1.4% in 2012, which would mark the slowest growth in three years. But within the market, the smartphone segment is growing much faster. The researcher estimates that smartphone shipments will help drive growth in mobile revenues. During the last quarter, smartphone shipment is estimated to have grown 39.5% over the year to 224.5 million. Globally, Android phones remains the leaders with a 68.3% market share, which is projected to shrink to 63.8% by 2016. iOS phones will see marginal improvement, with market share growing from 18.8% in 2012 to 19.1% in 2016.  The Windows Phone is expected to see the most growth, with market share rising from 2.6% in 2012 to 11.4% in 2016. BlackBerry should continue to struggle as its market share slips from 4.7% in 2012 to 4.1% in 2016. But RIM (Nasdaq:RIMM) is trying to reverse that trend with the release of several new BlackBerry phones this year.

RIM’s Financials
RIM’s recent quarter results surpassed market expectations.Q3 revenues fell from $5.17 billion a year ago to $2.73 billion, which was higher than market expectations of $2.65 billion. The quarter’s loss of $0.22 per share beat the Street’s projections of a loss of $0.35 per share.

The company’s financial performance may have been better than market expectations, but BlackBerry sales continued to decline. Shipments for the quarter fell to 6.9 million compared with 7.4 million phones shipped a quarter ago. The number of subscribers also fell by one million to 79 million.

RIM’s management expects the current financial pressure to continue as they prepare for the launch of the much-awaited BlackBerry 10 devices.

RIM’s Panacea: BlackBerry 10
RIM expects most of its current problems to be solved by the release of its new operating system, the BlackBerry 10, later this month. To prepare for the launch, the company even stayed away from the Consumer Electronics Show (CES) which began last week in Las Vegas.

As part of the release, RIM is reaching out to carriers to make new deals. Within the U.K., it has signed up with Vodafone, O2, EE, and Three to offer their new devices. Back home in Canada, it has tied up with Rogers to accept pre-orders. In the U.S., it has already signed up with all the four major carriers, including Sprint, T-Mobile, Verizon, and AT&T to sell the new phones. In addition, it has tied up with several businesses and government agencies and has supplied them with the new devices. Worldwide, it has partnered with more than 150 carriers to test the devices and sell them on their networks.

RIM is planning to release six new devices in 2013, in what some term as the “make or break” year. It has not disclosed details about the new devices, but the market is abuzz. Some believe that one of the new phones, BlackBerry Z10, will be similar to an iPhone, with a thin, flat design and a touchscreen. Other features of the phones include BlackBerry Balance, a tool that lets users use the same phone for personal and business purposes while keeping the two independent of each other. Other features include Messenger’s video-chat, a built-in calendar and a better Web browser, to name a few.

As part of its marketing efforts, RIM recently hosted events to get developers to showcase games and apps ready for BlackBerry 10. The company was giving out a cash incentive of $100 for each game and app that was approved to be made available on their store. The top few submissions are also eligible to win BlackBerry’s Playbook. Within less than 40 hours of the event launch, RIM received more than 15,000 applications for apps.

RIM’s Services Repriced
During the last quarter, RIM also repriced its services offering, causing significant disappointment among analysts. RIM’s services segment has traditionally been the most profitable segment and accounts for nearly a third of revenues. The new pricing structure will be in effect from the end of this month and will result in a lower prices for most services. RIM will charge more for enhanced features such as advanced security but will charge less for most other basic services. Analysts believe that the reduced pricing will hurt the company’s profitability as its hardware segment is not strong enough to support higher margins. However, RIM believes that the tiered pricing will help them enhance its proposition to their growing subscriber base in the low-cost emerging economies.

The stock has climbed since tumbling to 52-week lows of $6.22 at the beginning of the last quarter. It is trading at $14.95 with a market capitalization of $7.7 billion and touched a 52-week high of $17.96 in January 2012.

I hope the BlackBerry 10 bet pays off, in part because the global smartphone business will be far more exciting with four strong players than if it becomes simply an Apple vs. Google race.

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