Researching This Smartphone Maker's Prospects

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

I have been a staunch critic of former smartphone behemoth Research In Motion (NASDAQ: BBRY) for almost a year now. My disenchantment with RIM began when I sold my first BlackBerry after just one month because of its obsolescence and switched sides to Google’s (NASDAQ: GOOG) Android army. I was one of millions who have switched their allegiance to other mobile operating systems, and this has reflected in RIM’s stock price which is down 63% over the last one year.

However, RIM’s latest quarterly report has come as a pleasant surprise. The company fared better than the analysts’ bleak estimates and its stock price shot through the roof. While I still don’t see many reasons to cheer, I do see that RIM is preparing for a showdown with BB10 in its arsenal.

Thus, after bashing RIM unabashedly for almost four quarters, I’m now going to adopt a middle path and see whether RIM can genuinely turn around its fortunes in the coming months.

First, I will dig up the positives, or probabilities which can help RIM get out of the grave.

What Might Work

BlackBerry10: RIM counts BB10 as its messiah, but has kept it in a sanctuary for a long, long time, as release dates have been pushed back time and again. But now it seems they are preparing for war during their launch next year. The company displayed the features of its life-saving operating system at the BlackBerry Jam Americas conference, and they looked impressive to me at first sight.( I was surprised that RIM would get so innovative all of a sudden).

CEO Thorsten Heins is hell bent on fighting back and he is counting upon BB10 to do exactly that. RIM is beefing up its strengths and is adding other features that might entice its once-loyal customers back. The RIM faithful must be hoping that all those delays that BB10 had to face were worth something and RIM releases a complete device sans any hiccups.

Growing Subscribers in Difficult Times: Despite all the surrounding negativity, the company managed to grow its subscriber base to a record 80 million. This is indeed a positive and if RIM manages to deliver a product that is compelling enough for these 80 million to upgrade along with attracting others, I would take that as the first hint of a turnaround.

A Huge Playground: While the company might not be finding much room to flex its muscles in the U.S., it is finding growth in other regions such as Canada and the U.K. And again, there are markets such as Indonesia, South Africa, Venezuela, India, and other emerging regions where RIM has a fan following. For example, during the Jam Americas keynote, Mr. Heins said that the smartphone sales in South-East Asia have been growing at a tremendous rate and BlackBerry phones are leading the charge in this region.

Moreover, according to Mr. Heins, smartphones still have huge growth potential as smartphone penetration is just 30%. The company intends to catch the unaddressed market through its BB10 devices as more people switch to smartphones from feature phones. Considering RIM’s wide range of devices that cater to all sections of the populace, BlackBerry optimists can certainly take heart from this.

Building an Ecosystem: One of the main reasons behind the success of smartphones has been their ecosystem or applications in particular. For example, Apple’s (NASDAQ: AAPL) App Store, Google’s Play Store, and the entire experience they provide users have been among the key reasons behind the phenomenal success of the iPhone and Android devices. And it seems RIM is finally waking up to it.

The company is courting developers aggressively and is focused on building a novel mobile computing platform. RIM is ticking the right boxes here and has partnered with Facebook, LinkedIn and Twitter to enhance the social experience.

Frankly speaking, I haven’t seen management’s tone on a RIM quarterly call upbeat for some time now and the last call changed the trend.  In the words of Mr. Heins, “…we believe the BlackBerry 10 platform will advance the operating system environment to a whole new level, one which gives developers and technology innovators an open environment to help create the next generation of mobile computing.” If RIM can execute on this front, the chances of turnaround will surely improve.

The Rock solid Barriers

But the challenges that lie ahead of RIM are very, very formidable. Let’s take a look.

Perception and Acceptance: While BlackBerry’s used to be the “in thing” in their heyday, the situation is now quite different. Owning an iPhone or a Galaxy S III might seem to be the cooler option than buying a BlackBerry. RIM needs to change this. It would need to deliver a compelling product in BB10 that can change consumers’ perception of BlackBerrys being pre-historic devices. The initial glimpses of BB10 do look positive and RIM would need a herculean marketing campaign to back it up so that it can get back estranged consumers like me back into its fold.

Competition: This is the biggest barrier that RIM would need to knock down, and it is not at all going to be easy. The advent of the iPhone and Google’s Android-enabled devices are the first names that a consumer might think of if he’s about to buy a smartphone. Google's Android operating system commands around 52% of the market and iOS accounts for some 33% in the U.S. according to comScore. Throw in Microsoft’s Windows Phones and the competition gets even tougher.

But RIM is looking to take it one at a time and wants to reclaim the spot behind Apple’s iOS and Google’s Android operating system globally. And it’s good to see that RIM isn’t aiming to beat the top two and is looking to proceed methodically. After all, one can’t practically expect BB10 to supersede the 5 million units that the iPhone clocked over its first weekend. In addition, overcoming Google's Android operating system will be another challenge since the company's smartphone OS is used by numerous phones. 

So, RIM would aim to suppress Microsoft’s uprising in the smartphone arena with its BB10 and I believe it would be a practical first step. But on the whole, it would be a very difficult barrier to overcome as the smartphone business in more of a duopoly with Apple and Google ruling the market.

Final Words

After struggling for so long, RIM needs to create a positive vibe around BB10. A compelling device along with an adorable operating system would certainly help RIM in getting its engines running. Moreover, one shouldn’t completely write off the new phones without even looking at them and we need to keep our swords in our sheath till we check out the BB10. But, if BB10 turns out to be a below-par OS, then Research In Motion can genuinely start counting its days. 

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