In case you haven’t heard by now, Research In Motion (Nasdaq: RIMM) isn’t doing so hot. It’s faced with plunging BlackBerry smartphone and PlayBook tablet shipments, along with shrinking revenue.
Still, there’s one thing that the Canadian company has left, and it’s not just a penchant for self-deprecation.
The suspense is killing me
80 million users.
Freshly minted CEO Thorsten Heins recently sat down with The Verge for a quick interview, and this is a key strength that the company hopes to fall back on. He said that the company is honing in on its target market of BlackBerry loyalists, which are internally referred to as "BlackBerry People."
Source: Earnings press releases. Note: Fiscal quarters shown, not calendar quarters. No subscriber data available for Q4’11 and Q1’12.
Over the years, RIM has managed to add to its subscriber base, slowly but surely, fetching anywhere between 1 million and 5 million new subscribers sequentially each quarter. The downside is that last quarter saw the slowest growth yet, with just 1 million new subscribers. On the bright side, RIM’s service revenue is also at all-time highs on a trailing-12-month, or TTM, basis at over $4.1 billion, although it’s also under attack from wireless carriers demanding fee reductions.
Two peas in a sinking pod
There have been a lot of recent comparisons of RIM to Nokia (NYSE: NOK), also as another struggling smartphone maker. RIM’s user base is what Heins believes sets them apart: "Nokia doesn't have that, they're not in the service play, they have no value on top of the handsets."
This is actually entirely inaccurate, even embarrassingly so, since Heins doesn’t know his competition all that well. Nokia has three primary operating segments: devices and services, location and commerce, and Nokia Siemens Networks.
The last segment mentioned, which provides telecommunications infrastructure offerings, is a joint venture with Siemens (NYSE: SI), where Heins worked for over two decades. Yet, he somehow seems unaware of one of Nokia’s larger businesses. It’s not a small division -- it accounted for 40% of sales last quarter. It’s not profitable, even if you exclude the hefty restructuring charges last quarter, so this might be what Heins was referring to. But, then again, Nokia’s device business also isn’t profitable.
The location and commerce segment is miniscule, and mildly profitable on an adjusted basis.
Saying no to Android
Then a question came about following in Nokia’s strategic footsteps with OS licensing. Heins quickly shot down the idea of RIM becoming just another OEM, specifically one that makes Google (Nasdaq: GOOG) Android devices.
"If I look at the potential on Android, there's not much out there. You and I know that Samsung's playing a very strong hardware game ... on hardware innovation, and they do it well, but look at the other players," Heins said. "Android is starting to fragment and fork, so I don't know. My view is that we're not just in the handset business. We're in the mobile services, communication, and connection business."
Heins has no interest in losing control over the products, which is par for the course if you license another company’s software.
The tables turn
As far as the other way around, RIM is definitely considering licensing its own BlackBerry 10 OS to other OEMs. That’s a piece of the strategic puzzle that Heins is "looking into." If RIM went down this road, it would have a reasonable shot at convincing some OEMs to at least give BB 10 a test drive.
The gloomy reality of the smartphone world is that, while Android is the most dominant mobile OS out there by far, it’s generally not a profitable business for the vendors, even though it’s technically free. Samsung is one of a few that is executing with Android well, while HTC , Motorola and others, simply aren’t. Playing the role of a commoditized hardware maker is a tough gig.
OEMs are already giving Microsoft (Nasdaq: MSFT) Windows Phone a shot, even though there’s an estimated $20 to $30 licensing fee right off the top. Of course, Android makers also have to pay Microsoft licensing fees over Android, anyway, but those are estimated to be cheaper, at $10 to $15. It’s conceivable that OEMs having difficulties with Android and Windows Phone would take a gamble with BB 10.
Even more interestingly, Heins said that RIM is working on "something else," without elaborating further. I’m kind of hoping it’s that toaster-fridge that Apple’s Tim Cook refuses to give us, not realizing that the addressable toaster-fridge market is upwards of 3 billion units annually worldwide, but I’m just going to have to cross my fingers on that.
Long shot or no shot. Take your pick.
The real test at this point is whether any of these alternatives would actually succeed, which remains to be seen. Frankly, I don’t think any of them will work, and RIM will eventually be broken up and sold for less than book value.
Still, if I had to wager, I’d go with ditching hardware, plunging those resources into software development to avoid more delays, trying to license BB 10 to OEMs, and undercutting Windows Phone’s fees, while trying to catch up in its content ecosystem, and focusing on services revenue. It’d be a long shot, but it’s better than no shot.
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