Can BlackBerry rebound, and how will RIM play it out?

BlackBerry: Can it rebound?

Research in Motion still remains in a very precarious position, based on where it once was ─ at the top of the smartphone market.

The company’s new CEO Thorsten Heins has orchestrated considerable senior management changes, and the brand continues to downsize. It has stopped giving financial guidance to the street and has engaged with J.P. Morgan Securities LLC and RBC Capital Markets to look at all possibilities.

Just four years ago, BlackBerry was the #1 smart phone brand, and was widely adopted in security sensitive corporate and government offices around the world. It was the enterprise standard.

RIM continued to expand outside of North America until this year, but at lower margins, while its North American share nosedived due to delays in the BlackBerry 10 OS.

Attempts to embrace touch screens have led to failures. Its PlayBook tablet launch cost the company over $1.5 billion and the device was not embraced, even after severe discounting.

Continued global service interruptions, including this week’s in Europe, also continue to plague the company.

While there is a market for keyboard-based smartphones, RIM missed out on the huge consumer explosion in touch-based devices that Apple and Google so deftly rode to new heights.

It also severely under-estimated the “bring your own device” (BYOD) to work phenomenon that has propelled Apple and Android into corporations across North America.

Is there still spark?

Is RIM too big to fail?

It is cash positive but its quarterly losses are mounting after posting an annual loss in 2011. It still has one of the most secure networks and government agencies are not anxious to switch to more open platforms.

While its North American business is in serious decline ─ which is what Wall Street seems to focus on ─ its international business had been showing signs of growth.

When a BlackBerry store opened in Jakarta in the spring of this year there was a near riot. Touch screens are clearly not for everyone, and we still live in a world of customer choice.

Despite all its problems, RIM still has a loyal band of developers surrounding it, who make more money writing for BlackBerry OS than they do for other platforms.

It’s not about how many apps you have in the app store — it’s about the percentage of them that are profitable. But the market will have to wait for BlackBerry 10. With a closer tie to Android, RIM could find some more solid ground under it. It needs it!

How will RIM play out?

JP Morgan and RBC Capital Markets could recommend a sale or breakup of RIM even after they squeeze more cost out of the organisation.

Get sold

But who would buy RIM? Microsoft is one possible candidate since Nokia was never a force in the enterprise.

Google bought Motorola, so for Microsoft it would be a strategic move. But Microsoft is undergoing a massive effort in launching Windows 8 and propping up Nokia at the same time and hardly needs a new OS ─ bad timing for RIM.

BlackBerry still claims 77 million global users, and is increasing in popularity in overseas markets such as India and Indonesia, two of the world’s most populous nations.

A RIM with a more stable OS transition, a re-energised smart phone and tablet line up, and better developed services and apps could lead to bigger international growth.

Many companies have been there before ─ where their domestic market is suddenly smaller and shrinking in comparison to their international business. Making that shift is never easy, and some companies don’t make it.

Separate the goods

If RIM were to be separated, each new entity would have to seek scale and partners, not to mention that other players could snag the pieces ─ as was in the case of Motorola.

RIM’s BlackBerry Messenger service, with an estimated 50 million global subscribers might be an attractive target of major mobile operators around the world. That could be a telco chess game.

Drive out cost and pray for BlackBerry 10

The third approach, and the one that seems to be playing out at the moment, and one that the street is not fond of, is slashing costs and waiting to see the market’s response to BlackBerry 10 and a new lineup of devices in early 2013.

Those who have seen alpha releases of BlackBerry 10-based touchscreen phones have described them as “rough,” with slow performance and poor battery life. However, RIM’s developers have been more positive about them.

With a launch date approaching, RIM will need to weather the storm of increasing financial strain limping along with its current smartphone lineup.

Summary

The three scenarios discussed in our three posts all point to potential ways that the current smart phone status quo could be disrupted. Ironically, two are from former heavyweights while one is from a new contender.

We think Amazon entering the smart phone market is something to take seriously, and we expect the brand to enter soon, especially since Google announced its Nexus 7 updates and Microsoft launched Surface.

Nokia coming out as a strong Windows 8 player is a real potential, but the rollout of W8 needs to go well for Microsoft, especially on smartphones.

It could, and may stall on the PC side, but it’s even more critical on the smartphone side. There is so much riding on W8 for Q4 but will people show up to buy in a still uncertain economy in an election year?

RIM rebounding seems more like a defensive move to stay relevant and could be less of a disruptive threat in the short term.

History has shown that every four to five years there tends to be a new smartphone champion. It is clear that Apple and Samsung shouldn’t rest on their laurels too long.

People want choice. Change is constant. These are the two principles that have guided technology markets for years. And it’s no different when it comes to smartphones. History has a way of showing us that.

— Randy Giusto, SVP, Innovation Research and Industry Analyst

randy.giusto@ipsos.com

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