In what will be its first public move to revive its flagging
fortunes, Research in Motion (
RIMM
) announced early last week that it will unveil the new
BlackBerry 10 platform at a media event January 30. RIM will hold
the event simultaneously in multiple countries around the world and
use the opportunity to officially announce the first two BB10
smartphones. This comes on the back of the CEO, Thorsten Heins,
confirming in a press release late last month that the BB10 devices
are being lab-certified by more than 50 carriers worldwide. With
RIM finally seeing some good news flow in the last few
weeks, its shares have shot up by almost 15% this month as
confidence returned that the management will be able to deliver on
its deadline this time after having missed it twice already in the
past year.
However, the Q1 2013 launch implies that competitors such
as Apple (
AAPL
) and
Samsung
(
SSNLF
) will continue to munch on RIM's market share until then and even
beyond as RIM tries to generate positive market sentiment around
the new devices. To add to RIM's woes, competition in the
smartphone market is only increasing with Microsoft (
MSFT
) making a reinvigorated mobile play with its combined Windows
8/Windows Phone 8 push this holiday season. However, we still see
more value in the stock coming from its huge subscriber base
and the unique value propositions RIM can make in push email and
security. Our
price estimate of $12 for RIM's stock
is about 50% ahead of the current market price.
See our complete analysis for RIM stock here
80M Subscriber base provides value
The struggling smartphone maker has seen its BlackBerry unit
sales fall y-o-y for the last five consecutive quarters. Last
quarter saw RIM ship only 7.4 million BlackBerries, a precipitous
drop of 30% y-o-y and about 5% q-o-q. Device revenues for the first
half of fiscal year 2013 are already down over 50% over the same
period last year. However, despite the revenue drop, RIM continues
to add new subscribers every quarter, with many coming from
international markets.
RIM currently has over 80 million subscribers
globally. With BB nowhere near its peaks of customer appeal,
RIM will be primarily looking to get this installed base to upgrade
to BB10 initially. At the same time, RIM will bank on the push
e-mail and BBM service revenues from existing subscribers to tide
over this difficult transition period. CEO Thorsten Heins 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 e-mail
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 45% of our price
estimate for the stock.
BBM still relevant in many markets
But a carrier push to reduce fees as well as 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. In
addition, the new BB10 devices will not be supported by
the existing enterprise servers (BES), potentially making the BES
10 upgrade process costlier and complicated, thereby reducing RIM's
chances of pushing BB10 into the enterprise
base. (see BES 10 Fragmentation Increases The Risk For
RIM)
However, the emerging markets of Asia Pacific, South Africa,
Venezuela and Indonesia, where the BB brand has not yet been
hit as badly as in the developed markets, could be RIM's dark
horse. These regions continue to see a good number of new
subscribers adopt BlackBerries due to the continuing popularity of
the BBM service in these markets.
Much still depends on BB10′s reception in the market, and we do
not really expect RIM to ever reach the heights it once commanded
in the smartphone market. But if RIM does manage to make BB10 a
strong smartphone OS, it could still claw its way back into the
market and continue to generate cash from its enterprise and retail
niche.
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