RIM's Dilemma
Mohamed is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Research in Motion (NASDAQ: BBRY) has been a roller coaster ride as of late, one day news comes out of BlackBerry service outages and the stock tanks, another day new comes out of growth in BlackBerry's subscriber base and the stock pops ignoring the direction of the overall market. RIM despite the optimism and positive news coming out lately faces a serious dilemma.
One of the things that have helped to boost the stock over the past few days had been the news of RIM's subscriber base growing from 78 million last quarter to 80 million this quarter. This piece of news was announced Monday by CEO Thorsten Heins and totally caught analysts by surprise who had been expecting a decline in RIM's subscriber base and were completely dumbfounded.
Most analysts had one explanation for this growth
"It's got to be emerging-markets growth," said Shaw Wu of Sterne Agee
So RIM may be still strong in places like Kenya, Latin America and Indonesia, but is it the growth that the company is looking for?
Alot of people in Emerging Markets still use so called dumb-phones. When they see a new cheap smartphone with Qwerty, Email, Internet, and other applications they are eager to jump on board. Here in Egypt, Etisalat the telecoms carrier recently had an advertising campaign promoting 700LE ($110) Android smartphones in which it showed people enthusiastically smashing their old feature phone and happily replacing it with the new smartphone.
RIM a few years ago as it started to lose market share in the US was the premier smartphone in many emerging markets such as Egypt. The phone was both expensive and a status symbol. Apple's (NASDAQ: AAPL) iPhone was a niche, Google's (NASDAQ: GOOG) Android was gaining traction but still in its infancy, and people who could not afford a BlackBerry either went with an old Nokia (NYSE: NOK) phone or with a Chinese branded phone.
Now things have changed, People who were the first BlackBerry users have now replaced them with iPhones or high-end Android devices such as the Galaxy S3, Nokia is still primarily used as a feature phone and doesn't have a significant smartphone presence, and the BlackBerry and lower-end Android phones have become popular with alot of people who couldn't afford smartphones before. The BlackBerry goes for as little as $150 here in Egypt and sometimes less. I am sure that is the case in many other emerging markets that RIM still has a strong presence in, such as Indonesia.
Now here lies the problem, RIM is coming out with its new lines of BB10 smartphones which are believed to be the company's last hope to resurrect itself.
From what Thorsten Heins has stated the new BB10 phones are expected to be high-end smartphones that can compete with the likes of the iPhone 5 and the Samsung Galaxy S3. RIM's strong presence and even growth in Emerging markets had been due to the heavy discounting of its famous smartphone line. The components of the new BB10 smartphones alone are most likely going to cost much more than what some of its lower end devices are selling for now.
So now we have a situation in which a company has become very popular in emerging markets, some of which have very large population sizes and significant economic growth making them the economic powerhouses of tomorrow However, that particular company will release a product next year that many of its current fans and loyalists in these countries will simply not be able to afford.
Hence RIM's dilemma, should it focus on places where it's still strong and try to attract more people in these markets with affordable technology or does it try to restore its historical standing especially in North America and Europe and compete with Apple and Samsung for the high-end smartphone market with the BB10?
Compare and Contrast
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