It’s a well-known fact that Research In Motion Ltd (NASDAQ:BBRY) Blackberry has been reporting losses and has belonged to the group of mobile laggards for quite some time now. But its recent OS 10 launch has bolstered investors’ confidence, and even improved its sales–but is this growth sustainable?
The smartphone industry grew by 45.1% last year, and analysts estimate the industry growth to average around 44% this year. Pessimists can complain about the fractional slide in YoY growth momentum, but 44% would still remain a massive growth rate. This momentum enabled the Indian smartphone manufacturer Micromax Mobiles to project $1 billion in annual revenues for FY13, riding on a modest $45 million venture capital funding in 2009.
So where did this explosive growth come from?
A simple answer would be from India and China. India is the world’s second largest populated country, with a smartphone penetration rate of just 10%. But even with low smartphone penetration, India is ranked as the 5th largest smartphone market around the globe. According to a recent report, the smartphone industry in India is growing at 66% annually and is expected to grow by 61.4% in 2013.
China is an even bigger market for smartphones, making up around 29% of the global smartphone industry with a domestic penetration rate of 66%. According to a report by Canalys, China’s smartphone industry is expected to grow by 29.1% in 2013.
Naturally, if these markets continue to grow at such stupendous rates, smartphone manufacturers can have a blockbuster ride in the years to come.
Making the Right Moves
To ensure diversified growth, leading smartphone manufacturers, including Apple Inc. (NASDAQ:AAPL), are shifting their focus to India. A recent report suggested that since India is seeing a growing middle class population, where the bulk of smartphone sales volume comes from $200-$400 range.
As a result, Apple Inc. (NASDAQ:AAPL) has started offering a minimum $140 discount in exchange for “any” smartphone in India. The effective price of the iPhone 4 is now around $350, due to which its sales volume from India had tripled in just 5 days of the launch of the scheme. Over a period of one month, the iPhone 4 has suddenly become the hot favorite amongst the local crowd, and the discounted price seems to be doing the trick.
But it can’t be denied that iPhone 4 specifications are a bit dated, and Apple needs to refresh its mid-range devices. Luckily, Apple also seems to be developing a completely new and inexpensive version of its iPhone (or so it’s rumored). Although its margins would take a nosedive, Apple would be able to revive its much needed sales growth.
Apple’s iPhone revenues from India stood at $370 million in 2012, which is expected to balloon up to $1 billion in 2013, due to its aggressive marketing tactics.
A Lesson To Be Learnt
Apparently Nokia Corporation (ADR) (NYSE:NOK) has been targeting the entry and mid-range category, which has allowed it to grow so far. But its lack of innovation and competitiveness in its Symbian and Java operating systems has led to its decline. The company sold an impressive 5.6 million Lumia devices in the recent quarter, which rose from 4.4 million in last year’s quarter.
However, the bullish picture was soon overshadowed by the 25% sales decline of its remaining range of mobile phones, primarily due to incompetent operating systems and a limited app store. But according to the latest reports, the company plans to launch the Asha 501 in India, which would be later followed by its global launch. Management recently stated that India would play a vital role in Nokia Corporation (ADR) (NYSE:NOK)’s turnaround story.
It’s not hard to conclude that Apple and Nokia are realizing the importance of the Indian market, and are changing their marketing strategies to ensure growth there.
What Research In Motion Ltd (NASDAQ:BBRY) Blackberry Needs to Do
Going by Apple’s decision to target mid-range smartphone market, I think it’s high time that Research In Motion Ltd (NASDAQ:BBRY) Blackberry follows suit. Currently its mid-range devices in India include the Curve series (OS 6 and OS 7), which haven’t been updated in a couple of years. Furthermore, Blackberry’s OS 5 devices are still hitting the shelf, and they haven’t been updated for around 3-4 years. The company needs to reinvent its mid-range segment to avoid Nokia’s plight.
Additionally, the Research In Motion Ltd (NASDAQ:BBRY) Blackberry Z10 is priced at around $830, while its Q10 is expected to cost around $600. It’s important to understand that Indian market belongs to the mid-range smartphones, and its OS 10 devices won’t be able to generate significant revenues with the current price tags.
Since Research In Motion Ltd (NASDAQ:BBRY) Blackberry’s OS 10 devices have been well received by the market, I believe that it should strive to make cheaper OS 10 devices with competitive hardware specifications. The company has a clear path for blockbuster growth; its management just needs to understand the market dynamics of developing countries.
The article What Blackberry Needs To Do originally appeared on Fool.com and is written by Piyush Arora.
Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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