Why Investors Are Already Disappointed With BlackBerry 10

This was supposed to be a day of rejoicing for Research In Motion (NASDAQ: BBRY  ) , as the company hosted its launch event for BlackBerry 10 in New York this morning. Leading up to today's event, shares have more than doubled over the past few months after bottoming at $6.22. Yet, the stock is currently under heavy pressure today, down by as much as 9% so far.

Why are investors already disappointed with BlackBerry 10?

Patience is not a virtue in the smartphone market
This new platform has been in the works for years, an incredibly long development cycle in an industry known for rapid shifts and cutthroat competition. RIM acquired QNX Software in April 2010, and management outlined its new platform that would be built on QNX in fiscal Q1 2011.

BlackBerry 10 has seen numerous development delays over the years, and the Z10 won't be available in the important U.S. market until March (assuming there are no additional delays). That's 21 months from when then co-CEO Mike Lazaridis first discussed the platform transition to when it will actually be available to U.S. consumers.

One of RIM's better chances of seeing some early success was if it could launch BlackBerry 10 devices promptly during a relatively quiet time lacking other major rival smartphone introductions. The company already missed the busy holiday shopping season, and most competing vendors don't have anything slated for at least a couple months. That could have been a window of opportunity, but now the Z10 will be pushing up against the possible unveilings of major competitors.

Samsung's upcoming Galaxy S IV is expected to be unveiled in April. The South Korean company's Galaxy S series are among the best-selling Android devices right now, and Android followers are anxiously awaiting the next iteration. Apple (NASDAQ: AAPL  ) is rumored to be moving iPhone launches back to summer time frames and could potentially unveil an iPhone 5S and lower-cost iPhone as early as May.

Apple and Samsung are the top two smartphone vendors in the world right now, and it would have been better to avoid confronting them head on. In fairness, some of the timing is out of RIM's control, as CEO Thorsten Heins said that U.S. carriers are still testing the devices. The Z10 does launch almost immediately in the U.K. and Canada, but sales to those regions combined are still less than RIM's U.S. revenue.

The price is not right
Pricing may have also disappointed investors, as RIM is hoping to position the Z10 at the high-end of the market. The Z10 will retail for $200 on contract, and $600 unsubsidized, which are relatively standard price points for flagship devices. However, Apple still dominates the high-end smartphone market, comprising 74% of smartphone activations at AT&T and Verizon combined in the fourth quarter.

Using the retail price as a proxy for what carriers may be paying in subsidies, that likely means carriers are paying up to $400 in subsidies, but perhaps closer to $375 or so after concessions. Carriers have already voiced support for BlackBerry 10 and are generally interested in reducing subsidies via platform competition, but that's an awfully high subsidy for a device with low chances of success. The whole reason that carriers want to push Android, Windows Phone, and BlackBerry are to reduce iPhone subsidies, but the Z10 isn't as much of a reduction and inevitably carriers will have less incentive to push the device over other smartphones.

In comparison, Nokia (NYSE: NOK  ) smartly targeted lower price points instead of going head-to-head. The Finnish company is another smartphone heavyweight that's been down on its luck, and at least it recognized that it would see more success with lower pricing. When it launched its flagship Lumia 920 last quarter, it retailed for $100 on contract and $450 unsubsidized (currently exclusive to AT&T).

Smartphone

Price on Contract

Retail Price

BlackBerry Z10

$200

$600

Samsung Galaxy S III

$200

$550-$600

Apple iPhone 5

$200

$650

Nokia Lumia 920

$99

$450

Sources: RIM, AT&T, and Verizon. Entry-level pricing shown.

More importantly, this strategy is working; Nokia sold 4.4 million Lumias during the quarter and is facing supply constraints from healthy demand. RIM should have taken note of Nokia's pricing strategy.

Can't win 'em all
The BlackBerry Z10 is going to go head-to-head with the cream of the smartphone crop in both pricing and availability, all at a time when RIM should be trying to steer clear of fights that it can't win.

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Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 30, 2013, at 7:28 PM, jwyoungy wrote:

    I am in Canada and I pre-orders a bb 10 for $149.99 on a contract. Last I read there was no official pricing in the US so I'm not sure why you claim here that it is the same as an iphone 5 16 gb. This is the future as far as OS goes. In the coming years people will see what bb 10 is capable of and those who are using the 8 year ios will feel stupid for not switching earlier.

  • Report this Comment On January 30, 2013, at 8:11 PM, greenember wrote:

    Hard to say investors were disappointed when the whole market (including APPL) went down today. If everyone else was up and RIM was down, then yeah, blame it on the mid-March disappointment, but don't act like there weren't other macro pressures on the stock today as well.....

  • Report this Comment On January 30, 2013, at 9:59 PM, digitally404 wrote:

    Product price point makes sense. RIM won't need to sell too many products to bring it back to black.

    The 1 month later launch in US does suck though. But difficult to see how many lost sales that could possibly translate into.

  • Report this Comment On January 31, 2013, at 8:02 AM, BR14 wrote:

    "Why Investors Are Already Disappointed With BlackBerry 10"

    Because they were holding short positions and wanted to precipitate a slide.

    The US sale date is defined by US carriers. Nothing "BlackBerry" can do about it.

    BlackBerry 10 is a terrific device. It's OS is light years better than the opposition, but that's a fact that will only become clear over time.

    Infothathelp, all tech stocks by definition are "speculative". Which is why value investors rarely get in too deep.

    At any moment a new product may arrive and knock a tech leader off its perch. As happened with Nokia, RIM, and is now happening up to a point with Apple.

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