RIM's BB10 delay makes turnaround more difficult

It may be tough to keep up interest in the next-generation BlackBerry, which won't be ready now until next year.

By Trefis Jul 5, 2012 12:52PM
trefisResearch in Motion (RIMM) announced a bleak set of first-quarter results on June 28. While the earnings disappointment was expected -- after the company lowered expectations in its business update last month -- what was unexpected was a delay in the launch of the BlackBerry 10 smartphone to the first quarter of 2013. 

Given that the company is seeing a massive fall in BlackBerry sales and competitors Apple (AAPL) and  Microsoft (MSFT) will be launching their respective smartphones before the end of this year, it will be a tough challenge for RIM to keep potential customers interested in a platform that will not be released until 2013.

Despite the operating loss reported, however, the company managed its working capital well enough to generate a positive cash flow for the quarter. The company is also looking to cut 5,000 jobs and execute its CORE program to reduce $300 million in expenses and drive operational efficiency. 

While RIM hasn't given up on its turnaround hopes yet, it is also evaluating other strategic options that will help it leverage its assets to derive shareholder value. The company, however, has not given any specifics as to what those options might be.

BlackBerry sales plummet

The struggling smartphone maker has seen its BlackBerry revenues fall year-over-year for the last four consecutive quarters. Last quarter saw RIM shipping only 7.8 million smartphones, a precipitous drop of 40%year-over-year and 30% quarter-over-quarter. The BB7 smartphone that was launched late last year isn't doing well in developed markets, where the customers are upgrading to the iPhone and other Android-based smartphones. And the emerging markets, where entry-level smartphones have sold relatively well, are subject to pricing pressures from competitors.

With the BB10 OS launch now pushed to the first quarter of 2013, RIM will be subject to greater competitive pressures as the iPhone 5, Windows Phone 8 handsets, and a slew of improved Android smartphones will all be launched between now and then. The competitive pressure will come not only from potential customers who might decide to purchase rival smartphones, but also from developers who may be put off by the management's constant change of stance.

RIM BlackBerry Mobile Phone Market Share

Enterprise focus necessary

With slowing BlackBerry subscriber growth, RIM will aim to keep its 78 million current users intact to upgrade to BB10 later. Moreover, an erosion of its subscriber base endangers RIM's ability to bank on its push email and BBM service revenues to tide over this difficult transition period. CEO Tim Cook has said the company is looking to leverage the security strength of BlackBerry services that governments and enterprises around the world have come to rely on.

We believe the BlackBerry services, which include push email and BBM, are unique value propositions for RIM's customers, and the company is doing the right thing by realigning its focus on this segment. Our estimates show that this is RIM's most valuable division currently, accounting for almost 50% of our price estimate for the stock. But a loss of more enterprise customers to rival platforms, as the bring your own device (BYOD) movement becomes more popular, could hinder RIM's strategic moves to boost revenues from the services division.

We have a slightly revised price estimate of $13.40 for RIM stock, about 75% ahead of the current market price.

RIM Blackberry Push Email Service Revenue per Business Subscriber

(Microsoft owns and publishes Top Stocks, an MSNMoney site.)

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