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Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
A couple of weeks ago, I penned the piece “After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play“.
As explained in that article, many are prematurely discounting the
success of Microsoft in the mobile space. It wasn’t the wise thing to do
in the browser space, the gaming console space, or the enterprise
server space (all of which took time to gain inertia and momentum), and I
don’t feel it is wise to do in the mobile space either – despite the
temptation to do so born from the apparent mismanagement of the mobile
OS platform. More importantly, it brings up the topic of stickiness and
permanency in the enterprise space and (in my oh so humble opinion), the
only thing that is keeping Research in Motion from sheer and utter
collapse.
In the aforementioned blog post, I made it clear that MSFT is
uniquely positioned to assail RIM in its bread and butter Exchange
functionality stronghold, being that MSFT is the creator of Exchange. It
was just a matter of time before MSFT had to make this move, and facing
the demise of its mobile platform, now is the time to make it. Of
course, there are some stalwart Blackberry users and RIMM investors who
feel the threat to RIM is over blown. If you peruse the comment section
of Seeking Alpha, you can see where I syndicated the aforementioned article
and it received 88 emotionally charged, passionate and downright
vociferous comments from retail investors defending their favorite
handset, company or investment. The amount of emotion vs empirical
analysis is a red flag, in and of itself. One point brought up by the
many commenters was that RIM is about to introduce new tech, which I was
not very excited about. Days later, they released it, and I responded
with RIM Smart Phone Market Share, RIP?
It appears as if I was correct in my assumption that RIM was going to
miss the mark with their new hardware/software refresh. They are playing
catch up, and have not even caught up yet – as Apple becomes as popular
as ever (even encroaching upon the long sacred enterprise) in the smart
phone space and Android grows like a mutant weed, literally disrupting
the entire industry. Below, you can find excerpts of our most recent
forensic analysis and valuation of Research in Motion. Enjoy and
prolific investing!
So, Where did RIM Go Wrong?
Note: Charts below created with data sourced from Neilsen, Gartner, Canalys.
Technology firms usually operate under a rapidly changing
environment, and the price for falling behind the curve is nothing less
than failure. Research in Motion (RIM) sowed the early seeds of the
smart phone industry and altogether altered the industry dynamics
through its killer email applications. That was in early 2000. Come 2010
and the dynamics of the industry have again been altered. Sadly for
RIM’s shareholders, RIM’s management has failed to materially take part
in this paradigm shift.
As the focus shifts to graphically rich, cloud based, touch-centric
mobile computing as part of a holistic ecosystem and away from
traditional thin client/fat server based applications, Android, Apple
(and potentially Microsoft) are set to benefit the most due to a richer
browsing experience, broader app/cloud availability and deeper
ecosystems. RIM, despite what can be expressed as a “Johnny come lately
approach” is still seen as struck with an email focus, and is failing to
(re)gain traction in the retail space, which has the reflexive effect
of affecting its popularity in the enterprise space. This is
(ironically) the exact inverse of how RIM pierced the consumer market in
the first place, for its popularity in the enterprise allowed it to
move into the consumer space due to product familiarity found in mobile
professionals who adopted the work device for personal use. Brand
recognition did the rest.
Fast forward to today, and underpowered handsets, trailing
functionality, and a (comparative) lack of innovation in the OS design
are causing consumer defections in droves!!!
Each quarter of this year has seen Blackberry loyalty go from bad to worse…
As Android appears from practically nowhere as a major player on the
scene and Apple continues its march to damn near cult status, Blackberry
users are defecting en masse, with a contingent held captive by
enterprise server lock-in!
From literally nowhere, RIM ascended to become the second largest
smartphone vendor and it has the potential to fall just as fast – if not
faster. Even now, with a significant waning in Blackberry handset
popularity, enterprises users are left with no option but to buy RIM
devices to avail their enterprise server and security services. Thus,
migration from the RIM platform in the enterprise will often occur in
very large chunks of several thousand users at a time in lieu of a slow
bleeding of individual, piecemeal defections as the grip of the
enterprise server is weakened.
So, What’s Next?
After more than eight years of unassailable dominance in the
enterprise market, fissures in the enterprise façade are forming due to
the external and internal pressures emanating from Apple and Android.
The consumerization of IT and development of secure messaging services
by Android and iOS, the launch of Microsoft’s Windows Phone 7 (the
proprietor of the enterprise messaging de facto standard) and corporate
IT’s willingness to offer additional platforms on a “bring your own
phone” basis could spell the end of enterprise dominance and consumer
reach for RIM – which is basically the entire business of this company
with relatively undiversified revenues. Although it’s too early to
categorize RIM as the next Palm, one thing is certain – RIM is
definitely not sitting in a sweet spot and it would not be a stretch to
say that the writing is on the wall. With that being said, RIM would be a
strong strategic acquisition candidate for a larger company looking to
staunch the growth of Android and Apple in the burgeoning competition
that is the mobile handset enterprise space, namely Nokia Corp.
Besides encroaching share in the device markets, RIM is also facing
margin pressure as the average revenue per unit declines resulting from
the smartphone market commoditizing and BlackBerry’s brand premium
erosion. With Android increasing its clout in the OS market at an
incredible and unprecedented pace, handset players who produce their own
competing OS through R&D such as RIM, Nokia and AAPL have the most
to lose.
The Android’s popularity is pushing those that have prudently
implemented the OS to new highs, even as Blackberry retention and
satisfaction rates reach new lows…
Even (or more aptly put, particularly) Apple’s iPhone, which many
could conceptualize as the antithesis of the Blackberry concept, is
literally absorbing user from the RIM’s platform.
The Bull Argument: Even if RIM loses share, smart phone penetration is set to increase by leaps and bounds
Although there is a considerable merit in the argument that the pie
is expected to double over the next three years (344m smartphone
shipments in 2012e from 175m in 2009), it matters not if a player loses a
disproportionate of share in said pie. It is important to understand
the delta of market share gains and losses vis-à-vis increase in
penetration to blindly rely on this argument.
To drill down into this topic, we have bifurcated each of the smart phone player’s growth into following factors
- Growth due to overall mobile handset market
- Growth due to smart phone penetration
- Growth due to vendors increase (decrease) in smart phone market share
This exercise was carried out in explicit detail in the subscriber
report, and shows on a granular basis how much RIM stands to gain or
lose per unit of smart phone market growth and penetration.
(Subscribers, please refer to appendix section at the end of your
reports for metrics on other players)
“As demonstrated earlier, RIM shipments have lagged overall market since Q1-09. Further,
bifurcating RIM’s shipment growths into above three factors reveal
that nearly their entire growth in shipments could be attributable to
growth in market and not organic growth perpetuated by RIM market
capture. During Q2-10, RIM recorded 6% q/q growth in shipments of which
6% was attributable to growth in handset markets, 2% due to increase
in smart phone penetration and a negative 2% due to decline in RIM’s
market share. The story is similar in three of the proceeding five
quarters.“
The dynamics between revenue growth, market share growth, target
sub-market penetration, margins and unit shipments in an environment as
dynamic and volatile as one such as this undergoing a paradigm shift,
leaves static valuation models near useless and unrealistic. As such, we
have created a multi-variate sensitivity and scenario analysis with a
variety of market occurrences exemplified. We will soon be releasing a
dynamic Excel model so Professional and Institutional subscribers can
layer any combination of market factors and assumptions to come up with
their own custom valuation using our internal analytics.
The full Research in Motion Forensic Valuation reports are available to subscribers below (click here to subscribe or upgrade your subscription):
RIMM Forensic Analysis and Valuation – Professional & Institutional (45 pages)- RIMM Forensic Analysis and Valuation – Retail (10 pages)
- any paying subscriber can also download our
Smartphone Market Model – Blog Download Version;
which granularly breaks down the market share of various handset
manufacturers with data as recent as last quarter, catching the launch
of the iPhone 4 and the HTC Evo, two of the most important product
launches of the year.
More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
- Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
- This article should drive the point home: An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
- A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- RIM Smart Phone Market Share, RIP?
- Android is gaining preference as the long-term choice of application developers
- A Glimpse of the BoomBustBlog Internal Discussion Concerning the Fate of Apple
- Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
- Apple on the Margin
- RIM Smart Phone Market Share, RIP?
- Motorola, the Company That INVENTED the Cellphone is Trying to Uninvent the iPad With Android
- Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
- There
Goes Those Fancy eBook Aspirations from Apple, Barnes and Noble, and
Amazon: 100,000’s of FREE eBooks from the Public Library - How
Google is Looking to Cut Apple’s Margin and How the Sell Side of
Wall Street Will Enable This Without Sheeple Investor’s Having a Clue - Empirical Evidence of Android Eating Apple, Literally!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- advertisements -
I tend to agree with Reggie. I used to love BBs. I've typed a gazillion emails and BBMs on several different BBs over the years. Keyboards on BBs are still superior to other QWERTY alternatives ... I've tried Nokia, Palm etc. Email/BBM used to be superior to email/messaging on other platforms ... used to be. That is no longer true and that was the only (besides the keyboard) advantage of BBs. Since everything else was rather mediocre ... and now also horribly outdated. Even their latest and greatest, the Torch ... the innards are of a two year old phone at best. They first used that processor in the original Bold ... only RAM was increased in the new phone. At best it is a stop game phone. The OS is a minor update and is what OS5 should have been years ago but many existing BB users will remain stuck on OS5 and the old shitty browser for a long time since many models are not upgradable for arbitrary reasons, not sure of OS6 rollout even began outside of AT&T in the US and they need to flood the market with OS6 devices or it will take as long as OS5 to proliferate and by that time OS7 should be out the door.
I've struggled with BBs for long enough ... when their email support started to fall behind I was with them, when there was no App World I was with them, when App World launched only in the US for more than a year ... I stuck with them, when App World charged with mediocre applications that barely worked but cost 25EUR vs. 99c in iTMS ... I stuck with them, when I had to go to other websites to actually get software updates because RIM didn't like my carrier ... I stuck with them, when GPS in their flagship phone took 20 mins to lock on a location ... any location ... I stuck with them ... and then when RIM refused to replace my latest BB (their flagship) even though it was exhibiting a known hardware defect ... I got HTC Desire ... rooted and never looked back.
I put in the back end for my companies Blackberry's. Blackberry Enterprise Server (or whatever they call it now) what an appalling pile of junk software. The Blackberry phones are a sexy bits of kit, but I still turned down the opportunity to have one. Why anyone would want their work emails 24/7 is beyond me. It's bad enough having a phone.
I wouldn't touch them with a barge pole.
Hi Reggie, you do some nice work, but I don't get why you're all excited about bashing RIMM now? The time to short RIMM was in the summer of '08. You're right that they're in a lot of trouble, but I'd wait to short until the inevitable pump to $65 or higher. Anyone who has followed RIMM for the long term knows that you don't short it at $50 unless you like losing $$$.
Besides, after INTC's strange move today, I'd bet stupid MSFT comes in and overpays for RIMM to "energize" their awful mobile strategy.
And keep in mind that the iPhone will eventually be on VZW so AAPL's still the big dog IMO... But it's good for the consumer to see Google/Android finally getting it together.
good luck
Soon I will a side by side feature comparison of the high end Android Ego and the iPhone 4 to dispel the myth that the iPhone is even on par with that of the Evo/Androids. Many speak as if the Apple is the superior product, when in reality it is the recipient of superior marketing but definitely not even on par. Because of this I am confident that the next iPhone will probably be a technology marvel.
As for RIM, you are looking at technical I'm looking at fundamentals. Blackberries are looking much worse nor than last year and the fundamentals are talking medium term.
Soon I will a side by side feature comparison of the high end Android Ego and the iPhone 4 to dispel the myth that the iPhone is even on par with that of the Evo/Androids.
Many speak as if the Apple is the superior product, when in reality it is the recipient of superior marketing but definitely not even on par.
Because of this I am confident that the next iPhone will probably be a technology marvel.
Plus when the standard of living finally starts falling|(dollar down) in the US, the first thing to go will be all the stupid kids smartphones, even blue collar aduts that don't need them will be forced to ditch them.
The Blackberry gained popularity from the people that needed them in the first place(politicians, executives) and they will probably stay popular within that group.
RIM Said to Plan Crusher Tank Technology for Tablet Computer
Article in Bloomberg at http://www.bloomberg.com/news/2010-08-19/rim-said-to-plan-crusher-tank-technology-for-tablet-computer.html
Seems to me that they are late to the party again.
have the latest blackberry. My daughter just got an android based mytouch. Like everything else she does, it's so much cooler than me.
That is where everyone is getting it wrong with blackberry.
Blackberries are still the original and still the coolest. Whether its Obama or any top CEO, they still want Blackberries. They dont want to be seen with the same smartphone as their 17 year old kid. The Iphone looks like a toy, every kid and nerd has one. I don't care how much better an Iphone or a Google phone is, I dont want to be seen with one.
Never underestimate the power of a name.
i have a Blackberry Curve and an Iphone 3G and I would junk my Blackberry in a New York minute for the old iPhone. I cannot think of one thing that the BB does better than the iPhone. I think Reggie is correct and that RIMM is toast-as well they should be. Were it not for the lock-in of the contract with T-Mobile, I would have dumped the BB after the first month.
Then just keep the nerd phone when your contract is up.
Sorry. Should have made my point more clearly. I'm not unique in my firm. Many of my colleagues have turned in their BB's and gotten the firm to pay for their Android-based phones. The usability and convenience factors are so much better and my own experience with downloading applications between the iPhone and the BB is like that the BB just plain stinks.
Maybe Jim Balsillie should have spent more time running his company than trying to buy a hockey team.
this site is a shortseller's dream come true. We should have known about this years ago.
http://covert2.wordpress.com
Ferrari's and Ducati's really are junk too, good luck shorting those names.
Your right, its emotion but don't underestimate it.