BlackBerry 10 is Doomed

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Renowned venture capitalist Mark Suster used to love his BlackBerry -- until Research In Motion (NASDAQ: BBRY) goofed far too many times.  And by then, Apple’s (NASDAQ: AAPL) iPhone had come along and made the BlackBerry look like an outdated calculator.

According to Suster’s blog Both Sides of the Table:

I upgraded my Blackberry three times. Each time I was sure that THIS was the time they’d fix their browser. They’d figure out how to get Apps installed more easily. They’d become something more than an email device. Ah … that keyboard!

But they never did it. For years. And I concluded …

RIM must be run by morons. They had a two-headed CEO role.  They came across as quite arrogant thinking that they would always be the corporate device and iPhone was just a toy. Where Mark Zuckerberg always seems paranoid about competition and industry change – they seemed oblivious to it.

I suffered through years of trying to get that (awful) browser on the Blackberry to work. I wasted hours trying to download apps.

And then I did it. I quit my Blackberry. I felt like I gave up smoking. I knew I had to go cold turkey.

Once you’ve become this uncool a comeback is near impossible. Yes, I know Apple did it. But Apple enthusiasts never lost faith. Blackberry enthusiast is an oxymoron these days.

In my article “BlackBerry’s New Design Will Save the Stock” I wrote that BlackBerry 10 and its two new phones (which debut Jan. 30) saved the stock price, but not the company

The reason is because RIM is losing incredible market share.  I don’t think it can recover.

Positives

RIM does have a number of positives going for it.  Financially, RIM has pushed its cash position higher, making it better able to navigate future headwinds or to hire (or acquire) top talent.  RIM posted cash of $2.9 billion at the end of last quarter, versus $2.3 billion the prior quarter.

Cash is King.  Unlike other stragglers like H-P, RIM’s massive cash position and negligible debt mean that the company has time to turn itself around.

In addition, RIM reversed the downtrend to post a $9 million profit last quarter.  Finally, remember that RIM still has 79 million global subscribers, meaning that its devices are already in people’s hands. 

However, these pluses have a catch.

Negatives

On the downside, RIM posted a $265 million profit one year ago – a far cry from barely break-even last quarter.  More importantly, RIM’s revenue fell by nearly half to $2.7 billion.

To me, this signals MAJOR problems.  Yes, RIM still has 79 million subscribers.  But, the data reveals that RIM is inking new contracts far slower than competitors.  In fact, RIM is even having trouble keeping its head above water.  Last quarter marked the first time that RIM lost net subscribers; its base dwindled by 1 million.

There are other pressures as well.  For example, analysts were spooked when RIM announced that it might mix up its service revenue model, which accounts for over 33% of RIM’s revenue.  If RIM tiers its options and offers a “menu,” RIM may be taking the risk of putting its cash cow on the chopping block.

Competition

Just as RIM’s pressures rise, competition is becoming more fierce.  First, Nokia (NYSE: NOK) is in the midst of a turnaround.  Once the world’s largest handset maker, Nokia lost profitability and found itself in need of sweeping changes.

Those changes took the form of new Lumia phones that use Microsoft’s Windows 8 operating system.  I have heard much praise from Lumia users about the phones.  Just as important, Nokia’s phones cost just $99 with a two-year service contract, and I expect these devices to move Nokia back on the right path.

BlackBerry also faces a great deal of pressure from Google’s (NASDAQ: GOOG) Android operating system.  Google, which has 42% of the U.S. market, initially designed the system so that its apps could be placed on millions of phones throughout the world, giving users more exposure to its search (and thus advertising) products.

Some of Samsung’s best units run the Android system, and last quarter Samsung shipped 22.9% of all phones (increasing Google’s market share), 15.6 million more than second-place Nokia (19.2%) and 74.4 million more than third-place Apple (5.5%).  Also, Samsung has also been promoting the Samsung Galaxy SIII like crazy.

That leaves us with Apple’s iPhone, the beautiful device that excels in the areas where the BlackBerry falls short.  Unless companies reverse their trend and point employees only to the BlackBerry (companies have been giving employees more freedom), Apple executives will sleep soundly at night.  In fact, a recent announcement reports that Apple holds 50% of the market share in the U.S.

Overall, note that Nokia’s market share is relatively stable and that Apple’s is growing.  In contrast, RIM held just 2.1% of the market last quarter.  To put that in perspective, RIM was once the market leader.

The BlackBerry Can Recover

The situation looks bleak, but the BlackBerry is not yet hopelessly doomed.  My last article explained how RIM could save itself through its new designs.  With two popular designs to sell, RIM needs the support of market-leader Verizon (NYSE: VZ) to succeed.

Verizon added 1.5 million post-paid subscribers last quarter, 10 times more than AT&T.  Also, Verizon has a base of 90.4 million post-paid subscribers and a churn rate of just .91%, meaning that most subscribers stick around for many years.  If RIM is to succeed, it needs to lock in the support of Verizon, as well as those selling phones at Verizon stores and kiosks.

Gambling on the Stock

Mark Suster’s post described a phenomenon called a “Dead Cat Bounce,” where falling stocks get a boost from positive news.  To prove his point, he pulled out an old chart of Palm before its stock tanked.

I believe that the same holds true for RIM.  The stock jumped 128.5% from its low just a few months ago, making it a dangerous bet to get in now.  If you really want to play the stock, consider using a directional play or a strangle with options, because the capital outlay is drastically less.

Either way, I agree with Mark Suster.  BlackBerry ignored the competition, and it is doomed.  That is why BlackBerry 10 is too late.


ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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