Let me begin by saying that on the whole, I’m happy about the good show Canada-based Research in Motion, or now Research In Motion Ltd (NASDAQ:BBRY) has put up in the fourth quarter. After all, this is one company that has truly initiated quite a few milestones in the smartphone evolution and I’m sure nobody really wants to see the fall of an icon.
Having said that, investors need to have a look at the real picture before they fall for the company’s so-called ‘bright’ outlook. Here are a few pointers as to why I am compelled to say, “All that glitters is not gold” for BlackBerry now or in the future.
Is the Z10 really selling that well?
While 1 million Z10 handset sales (powered by its new BB10 operating system) is definitely a decent start, let’s not forget the massive cost cutting measures, including employee lay-offs, that have helped BlackBerry reach this stage of its profitability. Even then, quarterly revenue has continued to fall and dipped below analyst expectations. What’s more important is that there was a 3% fall in the subscriber base, more than what was expected. And that’s not good when you’re looking at the long-term picture.
Then again, the other 5 million handsets that Research In Motion Ltd (NASDAQ:BBRY)shipped during the period were powered by the earlier version of its operating system. That’s another indicator that this quarter’s results do not reveal the real demand scenario for BB10 devices, or Z10 for that matter.
The emerging market scenario
The next crucial aspect that we need to look into is Research In Motion Ltd (NASDAQ:BBRY)’s planned strategy of launching a series of low and mid-range BB10-powered phones, specifically for emerging markets such as India and Indonesia. That’s certainly a welcome relief from the disastrous pricing strategy followed by the company in emerging markets for the Z10 – a move I had already warned you about. Low cost phones will at least help the company secure a foothold against the slew of Samsung smartphones in these markets, most of which are powered by Google Inc (NASDAQ:GOOG)’s Android operating system. After all, Samsung has been a leader in these markets mainly due to its introduction of these phones in every conceivable size and price range. The only thing I’m worried about is the fact that even if BlackBerry manages to launch these inexpensive phones by this fiscal year, they’re still off to a very late start compared to Samsung.
The Android factor
And that’s not all. Research In Motion Ltd (NASDAQ:BBRY) also needs to compete with a host of other handset manufacturers in these regions, all of whom are churning out Android-powered phones in different price ranges. In fact, Google’s Android software, along with Apple Inc. (NASDAQ:AAPL)’s iOS, have together helped these smartphone biggies command a whopping 91% share of worldwide smartphone sales, as per recent data from research firm IDC. In comparison, BlackBerry’s current market share is an embarrassing 3.2%.
Why Apple will continue to rule
In fact, Apple, the company that triggered BlackBerry’s downfall in 2007 with the launch of the iconic iPhone, has already developed a firm focus on emerging markets such as China and India. While China is an obvious target for Apple Inc. (NASDAQ:AAPL), now that the country has surpassed the US as the planet’s biggest smartphone market, the company is also planning to triple the number of its exclusive stores in India by 2015. India is just starting to fall in love with Apple products and the company has been witnessing a recent surge in sales of its iPhones and iPads in this region.
Add to it the inevitable tie-up between Apple Inc. (NASDAQ:AAPL) and China Mobile, that is China’s largest wireless subscriber, and you can well imagine the uphill battle BlackBerry is facing right now. And if Apple’s rumored plans to bring out a low-priced iPhone are indeed true, that’ll be the final nail in the coffin for Research In Motion Ltd (NASDAQ:BBRY).
Nokia Corporation (ADR) (NYSE:NOK) isn’t doing too badly either
Incidentally, emerging markets are another major point of focus for fellow smartphone laggard Nokia as well. The company’s Asha range of low and mid-range smartphones is doing brisk business in India, having clocked an impressive 9.3 million in unit sales in its fourth quarter, well above the 6.5 million units sold in the prior one. And Asha phones come in touch as well as Qwerty-enabled versions. At the same time, Nokia Corporation (ADR) (NYSE:NOK)’s Lumia range of phones has had a successful tie-up with China Mobile as well.
The sad part about the US market
At the same time, Blackberry may not have the option to fall back on the US, still considered to be its biggest market. If initial reports are to be believed, Z10 sales have tended to be frosty, with very little product promotion as well as low carrier support. In fact, the company’s fourth quarter US-based sales only made up for 14% of the overall sales figure, dipping from 19% in the previous quarter. That, along with the surge in the Bring Your Own Device (BYOD) trend in the US, has provided enough evidence that US customers are increasingly shying away from Research In Motion Ltd (NASDAQ:BBRY) – into the arms of Apple Inc. (NASDAQ:AAPL) and Samsung.
A big blow to enterprise segment support
That’s another reason why the overall fall in BlackBerry’s subscriber base and subsequent fee-based revenue has a lot to do with the thinning away of the enterprise customer segment. Once famed for its security features, the company finds it difficult to hold onto to its loyal customers, thanks to alternatives such as Apple with its ‘walled garden’ approach, Samsung’s Knox enterprise security software and Nokia Corporation (ADR) (NYSE:NOK)’s strategic alliance with Microsoft’s Windows operating system, still the corporate customers’ favorite computing software.
The erosion in service fee-based revenue is unlikely to be stopped by measures such as the introduction of newer handsets or banking on the popularity of the company’s messaging services. Licensing contracts for the BB10 software might be a smart move by the company in this direction. Another recent company plan to offer its ‘Blackberry Balance’ work-life secure data solutions for Android and iOS-powered devices will also probably be a good start.
Let’s accept the fact – Apple and Android have too much of a head start over Blackberry, which can at best be an ‘also-ran.’ Frankly speaking, I don’t have much hope for Blackberry’s US-based sales figures that are likely to show up in the next quarter. But the launch of the physical keyboard-enabled Q10 would be an interesting proposition. That’s because Blackberry loyalists have always doted on the ‘Qwerty keyboard’ factor. But then again, this time the company just has to get the pricing right. The next quarterly results should automatically tell you whether you need to sell this stock or hold it further. Sadly, the majority of indications point to the former possibility.
The article The Hard Truth Behind BlackBerry’s Newfound Optimism originally appeared on Fool.com.
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