BlackBerry maker Research in Motion's (RIM's) declining market share in its single biggest market and falling stock price make the company an attractive buy-out target, and its gains in the developing world will not stave off the threat.
Last year was challenging for the Canadian firm, which experienced its biggest service outage ever in October, delayed a product launch, and received a lacklustre reception to its PlayBook tablet launch.
It is also experiencing fierce competition from competitors such as Google's Android tablets and Apple's iPad.
Industry tracker ComScore reported on Thursday that RIM saw its share of the US smartphone market decline in the three months to November, while Apple and Google's Android enjoyed increases.
RIM lost 3.1 percentage points of the US smartphone market from the end of August, while top smartphone platform Android moved to 46.9% from 43.8% for the same three-month period. Second in line is Apple, with an increase of 1.4 percentage points, giving it a market share of 28.7%.
The US is RIM's largest market, after what it classifies as “other”, and accounts for about 19.8% of its revenue. The UK contributed 11.4%, Canada 7.5% and “other” 61.3%.
However, a year ago, the US accounted for 34.3% of its revenue, while “other” contributed 44.1%. The UK's share has remained relatively stable, accounting for 12.4% a year ago, while Canada contributed 9.2% in the third quarter of last year.
Emerging markets
Strategy Worx MD Steven Ambrose says, although RIM is steadily losing support in its traditional markets, including Europe and the US, it is still growing at a “very healthy” rate in emerging markets.
“There is still no more compelling or price-effective offer in Africa, and although RIM may be growing at a slower rate than previously in SA, it remains strong.” This, says Ambrose, is despite the emerging perception among high-end users that BlackBerry is on its way out. Of the about 4 million smartphones in use in SA, Ambrose says the bulk of these are BlackBerry devices.
World Wide Worx MD Arthur Goldstuck expects RIM to maintain its growth trajectory in the developing world going into 2012, but points out a number of concerns around the company's strategic approach to technological advancement amid fierce competition in that sector.
“The last RIM results showed that BlackBerry sales grew by 56% in developing markets, which is formal confirmation of the arguments we've been putting forward that they remain the smartphone to beat outside the major industrial nations.”
In SA, says Goldstuck, BlackBerry accounts for between 60% and 70% of smartphone sales. “As a result, BlackBerry Messenger (BBM) keeps growing in significance in SA, and is well on target to meet our forecast from early 2011 that it would ultimately reach 24% of the adult cellphone user base in cities and towns by mid-2012.”
Valuable asset?
RIM's market capitalisation is extremely low, which makes the company a good buy-out target, says Ambrose. “RIM is now worth less than what Microsoft paid for Skype.”
Reuters said in the middle of last month that RIM's market value has fallen 77% in the last year, after a series of “disappointing quarterly reports, delayed phone launches, weak sales of the PlayBook tablet and other missteps”.
Ambrose says the fact that mobile is growing rapidly in emerging markets and that BlackBerry smartphones contribute to the demographic significantly may have saved the company financially to a degree, but it will not prevent RIM from being bought out. “In fact, emerging market support makes RIM an even more viable takeover option.”
Reuters recently reported that RIM had turned down takeover proposals from Amazon.com, as well as other potential buyers, preferring to solve its problems in-house.
The wire service, quoting sources, said the company's board wants its CEOs to focus on turning the company around by launching new phones, making better use of assets such as BBM, and restructuring.
Goldstuck says the appeal of BBM and of low-cost unlimited Internet access remain RIM's key drivers, along with deep penetration of the corporate market.
“The latter is also its core user base in the US. However, RIM's inability to keep up with the advances in applications integration and touch-screen functionality led by the iPhone means that the US market is swiftly abandoning it. Ultimately, when those currently buying the phone on contract in SA come up for phone upgrades, they may well also move on.”
Gaining traction?
RIM reported in the middle of last month that it grew revenue quarter-on-quarter. The company says turnover gained 24% to $5.2 billion in the third quarter, as it shipped 14.1 million smartphones, a 33% gain on the second month.
“Despite the challenges faced in the third quarter, the BlackBerry subscriber base grew to almost 75 million customers around the world,” said joint CEOs Jim Balsillie and Mike Lazaridis. The joint CEOs said the company continues to have a “large installed base” of customers.
However, the company's results indicate that revenue is lower year-on-year, down 6% from the $5.5 billion to November 2010.
Balsillie and Lazaridis say the company is “more determined than ever to capitalise on our strengths to overcome the recent execution challenges surrounding product launches, and the resulting financial performance”.
RIM expects fourth-quarter revenue to come in at between $4.6 billion and $4.9 billion. The company expects to ship between 11 million and 12 million handsets during the last three months of its financial year.
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