Editor Update: I’ve decided to split this article up into 3 parts based on reader’s comments.
The Future of Mobile Devices – Part 1 of 3
What does the future of Mobile Devices look like? The Mobile Device market has changed significantly over the past 10 years. Research In Motion (RIM) BlackBerry devices were once considered the gold standard for “smartphones” however; they have largely been replaced in the eyes of the consumer with the now ubiquitous Apple iPhone and Google Android devices. This article will attempt to peer into the future and try to determine what course the Mobile Device market will take over the next few years.
Research In Motion
RIM is in serious trouble and is looking hard to reinvent itself. Needham analysts declared recently “RIM is not dead; BlackBerry has a lock on the business market, where its communications and messaging capabilities still represent the gold standard.” However, “unless the company cracks the code in the consumer market, RIM’s likely to become a shadow of its former self,” Needham thinks. Needham cut its earnings per share estimates for RIM for the next two years by 16% and 37%, respectively.
Alternatively, RIM enjoys strong relationships with the major carriers who are looking for a counterbalance to the growing prominence of Apple and Google. The carriers are not keen on having just two companies controlling a major part of their businesses.
“The carriers are looking for guard dogs to keep Apple down and keep Google down,” said John Strand, a telecommunications consultant in Copenhagen. “BlackBerry has had very good relationships with carriers.”
Verizon does not share the dim view many investors now hold of RIM. “RIM continues to be a very important strategic partner,” said Marni Walden, the chief marketing officer at Verizon Wireless. “We have found RIM to be meaningful in the consumer space and critical in specific enterprise segments.”
Michelle Leff Mermelstein, a spokeswoman for Sprint, said the company “has an incredibly strong relationship with RIM.”
Analysts say that Apple and Google have fostered a system that could make carriers slow-growing utilities selling little more than generic network access. The revenue from applications, which provide entertainment, news and other services, do not flow to the carriers. In an apparent bid to exploit those concerns, RIM has repeatedly told carriers that, unlike Apple, it believes that they deserve a portion of revenues from its apps store as well as future services. However, as of now, the offer has relatively little financial value given the relative scarcity of BlackBerry apps.
Merger or Takeover
Since the Google – Motorola acquisition was announced, shares of RIM, which have suffered for much of the year, have shot up more than 10 percent, mainly on speculation of a sale.
The Motorola deal, which has the potential to shake up the mobile industry, comes at a difficult time for RIM as they have slowly ceded the market to Apple and Google. The current lineup of BlackBerrys relies on technology that dates back to the first models of the smartphone.
In an attempt to improve its lineup, in 2010, RIM bought QNX Software Systems of Ottawa and the Astonishing Tribe, a Swedish user interface design house, to recreate the BlackBerry platform. The results have been disappointing thus far, as RIM does not seem in a rush to introduce new Blackberry phones based on the QNX software until later next year.
However, despite reducing financial forecasts, the company remains firmly profitable. In the last quarter, RIM reported net income of $695 million, down from $769 million in the quarter a year ago.
BlackBerry, too, remains a valuable brand, even as its market share declines. It is the device of choice for corporate customers in important industries like financial services and law enforcement, which depend on the unique features of the BlackBerry to safeguard their e-mail. The security stems from RIM’s proprietary global network, a system that is hard to duplicate and generates recurring revenue for the company.
Potential buyers could include a large software company that, like Google, sees wireless as an important component in its future growth. Alternatively, a cash-rich Chinese handset maker like ZTE or Huawei could view RIM as a way to expand beyond generic, low-profit phones. Another possibility, if more remote, is the prospect of a better-known Asian manufacturer such as Samsung or HTC buying RIM to distinguish its products from the Android and Windows Phone competition.
A deal for RIM, though, faces significant hurdles. For one, RIM’s co-chief executives, Jim Balsillie and Mike Lazaridis, are the company’s largest shareholders and neither seems interested in losing control. As already seen, they also will not readily back down from a fight, as the executives demonstrated during a protracted patent battle several years ago that the company eventually lost.
The Canadian government, which must approve any takeover, has also been reluctant to sign off on deals for companies it views as strategic assets. Last year, the country’s regulators blocked the purchase of Potash Corporation of Saskatchewan by BHP Billiton, the Australian mining company. Politicians and commentators have portrayed an acquisition of RIM as an economic doomsday outcome for Canada.
Music Service
Expected to provide a boost to Research in Motion, the maker of BlackBerry smartphones, RIM is in the process of signing deals with major record companies to develop a limited digital music service for its subscribers.
RIM is expected to introduce the new service to the market in coming weeks. The new service would allow users of the phones’ instant-message service, BlackBerry Messenger, to send songs to other subscribers. The service would be available to BlackBerry Messenger’s 45 million users around the world, the majority of whom are in North America.
The new BlackBerry program would allow users to share only about 50 songs with other users, through playlists and other features and is expected to cost less than $10 a month. Record companies will share some of the revenue.
BlackBerry Messenger has become popular with young people because of its price. It usually offers unlimited text messages for a modest fee, even on prepaid phone plans, making it less costly than conventional SMS texting.
The PlayBook – RIM’s response to the iPad
RIM has tried to respond to Apple’s iPad with the BlackBerry Playbook. However, the Playbook has received a weak reception this spring when it lacked important features like an integrated e-mail application. In addition, Sprint canceled plans to sell a version of the tablet computer that would have connected to the carrier’s speedier network.
This means the Playbook has not found any support from the three largest U.S. wireless carriers, (AT&T, Verizon Wireless, and Sprint). Without their backing, RIM will have to bear the burden of sales and marketing support for the device, as well as application development. In contrast, Apple’s market-dominating iPad is advertised and supported by both AT&T and Verizon Wireless, and the tablet is displayed prominently in stores.
Sprint said that it had cancelled its plans because the market for tablets has become too crowded.
“It’s an interesting concept, it just hasn’t caught on with business customers as much as they would like,” said Paget Alves, president of Sprint’s business markets group. “There are so many tablets in the market; it creates confusion for the average customer.” Competing tablets included the Apple iPad, the Xoom from Motorola Mobility Holding and the EvoView from HTC.
RIM launched the PlayBook in April with the aim of luring new customers as sales of BlackBerry smartphones grew more slowly. Since then, RIM has had to contend with tepid reviews, a small recall, and an inability for it to connect to some e-mail accounts.
RIM reported it shipped 500,000 Wi-Fi-only PlayBooks in its fiscal 2012 first quarter in North America. By contrast, Apple said it sold 9.3 million iPads in the June-ended quarter, and Motorola recorded 440,000 deliveries of its Xoom tablet.
Rival device-makers have had little success so far in catching up to Apple after its launch of the iPad in April 2010. Estimates vary, but analysts suggest Apple has two-thirds of the market, if not more.
Demand for tablets is seen rising. Research firm IDC in July boosted its worldwide tablet computer shipments forecast to 53.5 million this year, from a previous 50.4 million estimate, even as deliveries of the devices dropped 28% in this year’s first three months.
New Phones
RIM has released new phones this year however many analysts feel that they are “too little, too late”. The new phones are designed to fill in a gaping product void for RIM in the consumer market. However, the new BlackBerry 7 operating system can be seen as little more than a placeholder as the company and investors await the next generation of QNX devices that are aimed to compete more directly with leaders like Apple and Google’s Android system. The company has bet its future on the new software, but QNX phones will not be ready until next year. Instead, the new models will run on an update to RIM’s existing BlackBerry software.
RIM’s situation is very similar to Nokia’s. Nokia is losing market share and suffering revenue erosion as its current phones fail to catch consumer interest as everyone awaits its new-generation Microsoft Windows Phone 7 devices, which should start to arrive later this year.
Canaccord analyst Mike Walkley paints a grim picture for the BlackBerry maker, which seems chronically incapable of stemming the consumer share losses it has suffering at the hands the iPhone and a multitude of Android handsets. “Our checks indicated soft sales of BlackBerry smartphones at all four tier-1 U.S. carriers with the iPhone and Android smartphones dominating sales,” Walkley writes. “Further, our international checks indicated continued slowing sales for RIM in Western Europe, S.E. Asia, and Latin America as aggressive pricing from Nokia and new low- and mid-tier Android offerings have impacted BlackBerry sales.”
RIM might play well in enterprise, but the consumer market expects more. Walkley continues, “While we do expect a solid upgrade cycle within RIM’s enterprise installed base for new BB OS 7.0 smartphones, we believe these devices will struggle to generate consumer sales or stem share losses to the growing iOS and Android user bases.”
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