So the Digital Jamboree starts: Q1 Results from RIM are horrid - Blackberry in tailspin

So we start the Smartphone Bloodbath Year 3: Digital Jamboree. And first up, Q1 results from RIM the maker of the Blackberry. At last Quarter it seemed like Blackberry had gotten its mojo back, growing 33% from the previous quarter (slightly faster than the industry even) and looked like its market share had stabilized at 9%, down from its peak of 21% back in Q3 of 2009. It has been a steady decline since. By Q1 of 2010 Blackberry had 18% of the global market. A year later at Q1 of 2011 it was down to 14% and now we have the latest numbers. For the calendar Q1 quarter of 2012 RIM sold 11.1 million smartphones, and that is about 7% market share. 

First a quick note to the smartphone stats wonks, I am modelling a 3% rise in smartphone shipments for Q1 fuelled by the Chinese New Year sales, so I am projecting 160 million total units shipped. We will not know the actual number as per usual, until each of the big 4 handset industry analyst houses has reported (Gartner, IDC, Canalys and Strategy Analytics) whose numbers are expected around first week of April.

BLACKBERRY OVER THE CLIFF

Secondly, obviously, Blackberry's temporary stabilization turns out to have been an illusion. The sales of Blackberriesfor Christmas was maybe some corporate/enterprise customers using some end-of-year budgets to replenish handsets, and in some markets parents buying Blackberries for their kids as Christmas presents. But since then, the BB sales have fallen off a cliff. In fact, if you liked my hypothesis of The Cliff Theory of how handset makers die, now Blackberry's one year performance fits dangerously the pattern identified in The Cliff. Their market share dropped by half in a 12 month period. While my theory has so far only looked at annual sales numbers, not quarterly sales numbers, this is nonetheless a very dangerous sign for RIM.

The other part my theory of The Cliff suggests, is that in the desperate moves a handset maker tries to recover, it will inevitably go from making profits to making losses. That has just now happened also at RIM, they reported their first quarterly loss in Q1 of 2012. This is VERY bad news and promises VERY bad coming months. The company is in a tailspin.

Consider. Just one year ago, for the full year 2010, RIM was the world's second largest smarpthone manufacturer by units shipped. RIM sold 48 million Blackberries vs third place Apple with 47.5 million iPhones. RIM had grown 39% in size from the year before and was very profitable. Last year 2011 that growth stalled to only 9%, and RIM fell from 2nd biggest smartphone maker to fourth, with 11% market share. Now compared Q1 of 2012 to Q1 of 2011, RIM's actual shipment number is down ! Blackberry global shipments are down 23% in one year while the industry itself grew 63% in the same period.

And obviously, the true danger-sign that all bets are now off at RIM, is when a profit-generating smartphone maker turns into a loss-maker. This is arguably the beginning of the end. If 'The Cliff' theory holds, RIM will fall to 3.5% size over the next 12 months (or worse) and will be gone from the market as an independent smartphone maker within 2 years. Could be much faster, as we heard already from the new management at RIM that they are seeking partners (and trying to sell the company, or parts of the company, or get an investor or partner).

IS RECOVERY STRATEGY THE RIGHT ONE

RIM's new management promises to return to its roots more. The early news stories that Blackberry is abandoning the consumer market proved to be misreported, but the company is trying to reorient to focus more on the enterprise/corporate segment (while not abandoning the consumer market). And they continue with their tablets. This is all bad news. Blackberry owned the enterprise/corporate market in North America but that market has been eroded as enterprise/corporate customers are increasingly willing to allow employees to use their own phones - very often iPhones in the USA but increasingly also Android devices. In the rest of the world, Blackberry was not strong in the enterprise sector. The worse news is, that there is a steady trickle of major enterprise/corporate/government clients who are switching completely away from Blackberry and (usually) to the iPhone. RIM will find it increasingly hard to even stabilize the market in the enterprise/corporate sector in those countries where it is relatively strong and find it hard to crack new markets in this sector.

Meanwhile the enterprise/corporate sector, especially in the Industrialized World, is already nearly fully saturated in smartphones. There is almost no growth in this sector. Yes, RIM can find replacement sales here, but even if every existing Blackberry is replaced 1 to 1 by another Blackberry, it would mean Blackberry's global market share would erode from the current 7% to about 4%-5% within a year (assuming the rest of Blackberry sales would not fall). No matter how you spin it, if the primary focus of RIM will be the enterprise/corporate sector this year, it means Blackberry's market share will continue to fall dramatically, and that means very very bad news every quarter.

The growth in smartphones is with the consumer market; and even that is becoming saturated over the next few years in the Industrialized World. Here in some of the most advanced Asia-Pacific countries like Singapore, Australia, Hong Kong, UAE etc - the proportion of smartphones out of all new mobile phones sold is well past 80%. In Western Europe it is past 70% and in the USA it is well past 60%. So the growth potential of consumer smartphones is not strong anymore in the Industrialized World nations, where today more than half of all phones in use already are smartphones. The growth opportunity is mostly in the Emerging World markets where about half of all smartphones will be sold this year. Out of all active mobile phone accounts, 80% are in the Emerging World countries and only one in five is in 'the West' ie the Industrialized World countries. And for the Emerging World, we need lower-cost smartphones near the 100 dollar price (without subsidy included). The average Blackberry device costs over 300 dollars and is priced far too high to be a mass market proposition in most of the Emerging World markets.

Blackberry did have strong success in many surprising Emerging World markets from Indonesia to Nigeria to Venezuela but RIM seems not to have been able to fully capitalize on that and to spread into the rest of the world. There are many countries where the Blackberry is not strongly welcome by the carriers/operators (like China) or where the local regulators are concerned about the level of 'too much' security on the Blackberry service (like several countries in the Middle East). These all have hurt Blackberry's chances. And of course there is the added pain of having launched the tablet which does not support Blackberry's other business well and has been an enormous drain on RIM's profitability while selling in modest numbers only, compared to the market dominant iPad.

I explained in my Blackberry analysis last year, that RIM also suffers a problem related to the youth market segment. The youth do love their Blackberries ('feeding the BeeBee' as they say in Britain when they send BBM messages) but the addiction is more to the BBM messenger service than the device. Any old Blackberry can be used to send BBM instant messages, so once a teenager has any old Blackberry device, that is enough. Then as the Blackberry typically is not the most advanced phone by screen or camera or web browser or app store selection etc, the youth will happily replace their 'other' phone with something new, but keep the old Blackberry. That is why Blackberry has a far slower replacement cycle than the smartphone industry overall. This further means less handsets sold - compared to the industry average - per year than the rivals. It means a loss in market share when measuring new handsets sold. More bad news to come in the coming months.

In short, this is the worst quarterly results from RIM and while it was up and down several times last two years in the results, this is now both a giant drop in market share, and the first time RIM goes from generating profits to generating a loss. I think we've seen another giant fall off a Cliff. And how astonishing, RIM was the world's second largest smartphone maker just over a year ago. How fast they can fall in this volatile industry. Keep tuned for more in Smartphone Bloodbath Year 3: Digital Jamboree.

Comments

[cycnus]

Tomi,

Just a quick reply
In your article about user number (not this one), you said RIM/BB have 100 million+ user, but according to RIM, they only have 77 million user
source: http://www.thestar.com/business/article/1153788--blackberry-maker-rim-retrenching-after-more-bad-news

[Tomi T Ahonen]

Hi cygnus

I know. That 77 million number is the count of the official subscriber base for Blackberry's service. There are more handsets in the wild than the subscriber number. My number is the total Blackberry handsets in use whether they have signed up to the Blackberry service or not.

Tomi Ahonen :-)

[cycnus]

Ok got it...
So there were around 30 million BB user who didn't sign up for service and use BB for dumb phone :) LOL.

[ChrisD]

Interesting article again, Tomi!

I think RIM really needs to capitalize on the enterprise market, by moving beyond their own system. That way, they will not sell more phones, but at least they stay in business ... ;-)

They could bring out BBM and Exchange client (mail & calendar) for other platforms - Android and iOS (and maybe WP7 if they ever sell in noticeable numbers). These would integrate with existing BB infrastructure, and they could charge for those apps. That would keep them their clients, while moving towards more service, less phones.

It sounds a bit like a suicide move, but since they are declining in phones, what else can they do?

[cycnus]

@ChrisD,

I was wondering if the Android and iphone user really want BBM on their phone. I believe What's App is a better platform compared to BBM archaic design.

@Tomi

Do you think by shrinking, RIM/BB would survive? or they just prolong the Cliff?

[Louis]

@Tomi: Because you only look at market share and aren't interested in ASP or the action in the leading markets, you're probably the only one who thought RIM had stabilized things. If you look at Michael Mace's Fall a 2010 post on RIM, it is very prescient: in terms of diagnosing the problem and predicting the future: http://mobileopportunity.blogspot.de/2010/10/whats-really-wrong-with-blackberry-and.html

[Sander van der Wal]

@Louis

In deed it does. It was a very interesting read. And the theory applied by Mace could well be applied to Nokia too. Should be an interesting exercise.

[Michael]

There is a lot of talk about RIM being purchased for the patents it holds. However, with the two big payouts it had to make to license patents it was infringing on, I wonder just how much the patent portfolio is really worth.

Their best strategy (in terms of shareholder value) might be to sell the portfolio, remit their $2B in cash back to their shareholders and then sell the company.

[cycnus]

@Michael,

I'm 100% agree with you.
I also think that RIM have no chance to survive at all.
Their archaic infrastructure have been proven not good.

Now the question would be,
What would happened to all BB user all over the world if RIM do what you said.
Suddenly, their phone were not able to BBM/email because RIM is gone.

[Gregg Borodaty]

Hi Tomi. I'd like to add that RIM is doomed for another reason. The smartphone OS fight is moving into the next battle - integration into the living room. To participate in this battle, an OS will need to have a phone, tablet and TV strategy. The three operating systems that will participate in this battle are

Apple with iOS for iPhone, iPad and Apple TV
Google with Android for phone, tablet and Google TV
Microsoft with Windows 8 for phone, tablet and Xbox
(As an aside, Sony could be a contender because of their Playstation dominance, but the lack of a unifying OS puts them at the mercy of Android).

Since RIM lacks a television strategy, they are destined to become a niche player in the enterprise, which is why they are making the right strategic decision at this stage of the fight.

[Earendil Star]

I think the fashion factor quoted in some comments to the Cliff Theory post should not be disregarded.

Reality is, iPhone rules because it is highly fashionable. Looks are nice, price is high (a plus for an "elite" object), OS is simple.
If you have it, you're cool. If you don't, well, tough luck.
Just as in haute couture, it's the name that counts. A better quality chinese equivalent of a top fashion brand such as Hermès would stand no chance.
Almost the same goes for Apple and the iPhone.

This used to be true for BB as well. I remember a number of years ago when having a BB was really cool.
It all started in the corporate world: if you had a BB, you were someone. If you did not have one, you were out.
This trickled also to the consumer world, with cool design such as the Pearl. That iconic white globe glowing was captivating.

Then the iPhone came out, and that was the beginning of the end. Reason? The iPhone became the new status symbol.
Yes, when the first iPhone came out, it was completeley revolutionary: all screen, multitouch, gyro, cool apps
(but often useless, even if I liked them: the Star Wars lightsabre, the chainsaw, etc.).
But more than that, Apple was the real master in marketing: store queues, cool looks, army of fanbois, word of mouth.

Slowly SMSs would start showing "sent from my iPhone" instead of "sent from my Blackberry".
This time the tide came from consumers and went to the corporate world.
And it's bringing with it iPads and iMacs and shortly, possibly, also iTVs.

This will last until the next disruptions comes out. Maybe from Apple. Maybe from somebody else, now that SJ is gone.

Some are saying BB was behind and even archaic.
I agree that BB was not delivering and lacking in execution. The top brass was fired for this.
Too late with QNX. Too late with an appealing PlayBook (with proper apps and price).
And what is worse, presenting something not disruptive enough: just playing catch up to Apple.
Yet, the real trouble, is that it fell from grace with its customer base. It was no longer regarded as a status symbol.

Furthermore, I believe BB's major strength and technological advantage over competition, was also a factor that in the end played negatively.
Security. Theoretically, all corporation should value security. In fact, it came out that few really do.
Furthermore, many illiberal countries started boycotting the BB. Starting from Saudi Arabia and other Arab states, and counting.
This was a big blow to BB:

Meanwhile, the other BB advantage, messaging, was made less appealing by specialized apps, like Whatsapp.

Now, BB is looking to salvage what remains of its heyday.
Probably, it will fail. Possibly, it will be sold.
Yet, at least, it tried to fight back.
In any case, it will have died an honorable death.
And someone will pay for its remains.

Contrast this to Nokia: it did not have this privilege. The attack of the parasites was too sudden and immediate.
It is now being eaten from the inside. Only the outer shell will remain, its iconic blue Nokia brand.
Its inside being devoured by soft microbes that, ironically, would have died without it.

Nokia's destiny: to become a lean, captive OEM. For a stronger MS: now with more patents, maps, carrier relations, mobile know how, brand.
And what is fascinating, MS managed all this without paying a single cent.

Good night and good luck.

[vladkr]

Next episode, Nokia and WP (again, I know), but news from North America are quite bad

[Earendil Star]

Kudos to Louis for the interesting read. Very instructive.

[TCB]

@Earendil, great post, but in short... The Youth market, especially the ubiquity among lower income teens is making Blackberry into the myspace of mobile phone brands. 6 years ago it was a status symbol among the corporate elite, now its brand is badly wounded and massively downmarketed.

Focusing on the lower priced phone market segment was a critical mistake, since all the profits in the industry are in the premium phone lines, first and foremost iPhone and then the Samsung Galaxy series.

Thats why we wont see a cheaper iPhone, unless things go desperate for Apple. It gives them no advantage.

[Louis]

@Sander: Thinking in Mace's terms a little bit is interesting here's why.

1. The descriptive part

We can interpret "strong growth in the Indonesian youth segment" as "gobbling up late adopters". For Nokia, all the signs were there in early 2010 that sales would "go vertical" (as Jean-Louis Gasee puts it http://www.mondaynote.com/2012/02/12/lumia-800-nokia’s-comeback/): a disappearance from the trend-setting markets; lowering ASP; no models competitive with the iPhone concept; Android and iPhone ramping up outside the US.

The non-conspiracy theory story goes like this: Within Nokia, there were people who *had* been thinking about what to do in the post-iPhone world, but their projects failed for some combination of technical and political reasons. Elop arrives, sees the very grim picture, and makes what he sees as the best of the two realistic choices by going with Microsoft.

If we want to be charitable to Elop, we can even speculate that the internal numbers are so awful, that the Burning Platforms memo is a kind of pre-emptive distraction to change the discussion. I have no idea if it is true or not, but I wouldn't rule it out. Notice that RIM tried to stay the course, and blew up. The DoCoMo Symbian forks too.

So, in some sense, this way of thinking says there shouldn't be an Elop effect.

2. What Mace says to do

Here, we find a big divergence. Mace tells RIM to basically build on its core audience, as opposed to doing something dramatic. The question, I think, is whether switching to WP7 would "make the herd stampede" or not. Tomi's oeuvre is basically a long argument for "yes".

I am not so sure. There's no obvious way in which WP7 phones from Nokia aren't consistent with being consumer-oriented smartphones in the mid-price range, or discordant with the brand.

Anyway, it will be interesting to see it play out.

3. The "right thing"

This would have been for Nokia to declare Android to have secretly been a Maemo/Harmattan/Meego/Moblin/Tizen all along in 2008 and just do an Amazon-like fork. But this is only because we know what happened next. The nature of disruption is that this sort of thing is not predictable.

[Louis]

@Lee I agree with all of this. WP seems like a good fit for RIM, which has a lot of expertise with Microsoft's server platforms and "BBM for Windows" might be a compelling iMessage alternative. Also, people here seem too stuck on specific iPhone features, as opposed to the importance of the smoothly-working multi-touch concept.

[dr zorg]

@Louis

That's a great article there, wonder how I had missed it. Especially this part:

"How to avoid the cliff

To keep a platform viable, you need to focus on two tasks: Keep the customer base loyal, and add adjacent product categories."

Thinking of Nokia now (RIM is already past that stage), they have totally failed to see the signs and Elop's actions have eliminated any loyalty advantages that Nokia had ever had. I have no hope for them now.

[dr zorg]

@Louis

God forbid they partner up with Microsoft. Take a look at what this has done to Nokia, that's enough to scare any self-respecting company shitless.

[dr zorg]

@Louis

1. "The non-conspiracy theory story goes like this: Within Nokia, there were people who *had* been thinking about what to do in the post-iPhone world, but their projects failed for some combination of technical and political reasons. Elop arrives, sees the very grim picture, and makes what he sees as the best of the two realistic choices by going with Microsoft."

Elop did not make the decision to go with Microsoft, it was made months before him. He was made CEO simply in order to execute this decision.

2. The only problem is that in order to keep the herd from stampeding you need to introduce the new product (WP in this case) softly and gradually. NOT replacing the existing product lines - because the way BB OS (or Symbian or Maemo) handles is vastly different from WP. Not only that, the difference in features and in the "ecosystem" priorities are also different. So in effect, one needs to by all means AVOID saying "WP ONLY" as Elop did. By all means the present users' and developers' fears should be allayed and they should be led to confidence in that their current products and services will remain fully viable and compatible with the new strategy.

3. Nature of disruption can be unpredictable but you can surely minimise the effects if you play smart. Declaring WP as their "only strategy" and saying that "plan B is to make plan A work" effectively killed off any hope of success for the disruption - disrupting Nokia itself in the process. Perhaps (and to me quite evident) it was the "plan A" all along.

[kevin]

@dr_zorg:
- Mace's article was excellent. It provided me great confidence in my earlier summer 2010 assessment to stay away from RIM and Nokia, when I was still trying to find other mobile industry investments. Too bad he didn't also look into Nokia.

- As I've written many times here, one of Apple's goals is to keep its customer base satisfied and thus, loyal, especially given the 18-24 month customer replacement cycles. Apple seems to ensure that its products can receive 2 OS upgrades, while most Android vendors claimed that last year's product can't even handle the next Android upgrade. There was a great article by Glenn Fleischman on how Apple walks a fine line, making the 2-year upgrade a no-brainer for everyone, but the 1-year upgrade appealing mostly to early adopters. See http://tidbits.com/article/12856

- I also believe as you do that the Nokia Board already made the decision to switch OS, but that's not what most of the posters here think.

- Although you solve the customer problem by a soft, gradual transition, you also have to solve the developer problem. If Nokia had planned all along to kill Symbian within a year or two, but held off telling their Symbian developers until the very end, it would've led to major trust issues with developers. Ideally, a company can provide a bridge from one to the next (like Apple did from Mac OS 8 to OS X, and Nokia was trying to do with Qt). In any case, I think the soft, gradual transition would've been better - developers should see the market response and determine where to put their resources.