Should BlackBerry maker RIM exit the hardware business?
By Chantal Tode
July 2, 2012
Fairfax wants to take BlackBerry private
Research In Motion’s problems are multiplying and the only way out may be for the company to exit the hardware business and focus on licensing its software, according to one analyst.
Last week RIM reported a 43 percent drop in sales, a loss for the first quarter of 37 cents a share and plans to cut 5,000 jobs. But perhaps the most damaging news was that company’s latest mobile operating system, BlackBerry 10, will not be available until next year, later than had been expected.
“It is becoming clearer than ever that the company needs to wave goodbye to hardware and focus more on delivering services and licensing software,” said Malik Saadi, principal analyst at Informa Telecoms & Media, London. “This quarter’s results have effectively confirmed that RIM can no longer afford to be a wholly vertical company with a fully integrated business model.”
“[The delay in BlackBerry 10] means investors should expect an ongoing bad performance from RIM, at least for the next three quarters,” he said. “Now it is strongly questionable RIM could maintain its cash position during this period and execute its strategic plans without making some painful decisions of exiting parts of the market they service.”
RIM’s star has been fading for some time now as it struggles to adjust to the consumers’ growing love of smartphones.
Just several months ago when it released its fourth quarter results, the Waterloo, Ontario-based smartphone maker said it was on schedule to release Blackberry 10, its new mobile operating system in the fall. However, last week the company said this would not happen now until next year.
The development could be significant for RIM because it means the company could lose significantly more users. RIM has already seen its share of the smartphone market plummet as iPhones and Android devices have become popular with consumers as well as in the workforce, which has been RIM’s traditional strength.
The BlackBerry PlayBook
To make up for the anticipated loss of users over the coming months, RIM should consider licensing BlackBerry 10 to other device vendors and extend the reach of BlackBerry services to beyond its own portfolio of devices, per Mr. Saadi.
“This will enable RIM to target a wider audience and unlock new market opportunities in both the consumer and the enterprise segments, allowing the company to reinvigorate its position as a leader in delivering a premium customer experience and reliable and secure messaging services,” Mr. Saadi said.
Shipments, prices drop
Rumors that RIM might sell the company were only reinforced by the latest round of bad news.
Phones built on the new OS were expected to help the company stop the bleeding but with the delay, this means RIM is only going to lose more ground. Not helping the situation is the likelihood that Apple will release the next version of its iPhone in the fall.
For the first quarter, RIM said that sales dropped 43 percent for a total $2.8 billion. This is the fourth consecutive quarter that the company’s revenues have declined.
The company also posted its first quarterly operating loss in more than seven years, with a new loss of 18.5 percent.
The next morning after the results were released, the company’s stock took a pounding, dropping as much as 15 percent.
What is weighing down the company’s results is a decline in both shipment volume and the average selling price for BlackBerry smartphones.
The company shipped only 7.8 million smartphones in the first quarter compared to 10.7 million recorded in the previous quarter while the average selling price of BlackBerry smartphones declined to $218 from $258. Shipments of the PlayBook totaled 260,000 for the past quarter.
“RIM is gambling on the launch of its forthcoming BlackBerry 10 operating system to redress the situation,” Mr. Saadi said. “However, the ongoing delay in launching the platform is not going to be in the favor of the company given its current bad performance.
“The analyst community does not doubt the capabilities of such an OS but this is not enough to help the company redress the situation,” he said. “Bear in mind that 100 percent of the 78 million current BlackBerry users are still using legacy devices, so upgrading all these users to BB10 will not happen overnight and RIM might well lose a great number of these users in the process.
“Worst, is the fact that the launch of the platform is now postponed to the first quarter of 2013 calendar year.”
Chantal Tode is associate editor on Mobile Marketer, New York
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Comments on "Should BlackBerry maker RIM exit the hardware business? "
Kelly Dundas says:
July 3, 2012 at 5:51pm