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RIM Now Sees Clearly, Giving Up on Smartphones

Stocks in this article: RIMM NOK AAPL GOOG MSFT

But sadly for RIM, this wisdom may be "too little too late" as it reported revenue of $4.2 billion -- a number that represents a drop of 19% from the previous quarter. Management said the decline was caused by decreased BlackBerry smartphone shipments falling from 14.1 million in Q3 to 11.1 million in Q4, as well as a higher proportion of lower average selling prices. RIM also said the Bold 9900 continues to gain traction while certain models of the BlackBerry 7 were not selling as well as the company had anticipated.

RIM Now Seeing Clearly

The company offered very little to no guidance at all. So this leaves investors to wonder how exactly to value the company, absent some direction of where it is going? But during the conference call, it was somewhat clear to me that the company offered a slight admission that it was quitting the smartphone race. It did this by using the words "entry-level" on numerous occasions. To me, "entry-level" means non-iPhone or Android-based devices - rather, the market for lower end "non-intelligent" phones, in which Nokia is now a leader.

RIM's management said the following:

  • "The majority of RIM's subscriber growth is coming from international markets. With the BlackBerry Curve 8520 and its unique value proposition, we defined the entry-level smartphone segment around the world. We have sold more than 40 million entry-level Curves into this market segment, a huge success for this company."
  • "In the fourth quarter, we recognized a pretax charge of approximately $267 million relating to those products based on our current expectation for sell-through, estimated inventory levels in the channel and excess inventory on hand. We expect this trend towards the higher mix of entry-level products to continue."
  • "The plan to launch more BB7 device into the entry-level market in the near future, as Thorsten mentioned, and our portfolio of higher ASP products will begin to age before the launch of our new BlackBerry 10 devices later this year."
  • What all of this tells me is that the company has conceded the smartphone race to Apple and Google (GOOG) and now sees Nokia as its primary rival. If I am correct, the company deserves a considerable amount of credit for doing something that I think makes perfect sense. What RIM understands is that for as bad as things have been for Nokia, it has yet survived by dominating the "entry-level" phone market. RIM now sees this as a more lucrative business and one that can possibly prolong its existence, absent an acquisition, while it also migrates into the services business, supporting its mobile fusion initiative.

    Bottom Line

    As possible turnaround stories go, this continues to be one that remains very intriguing. But the more I look at it, the more it seems that the odds are stacked against the company. Now that it wants to challenge Nokia, it should not be ignored that Nokia has software giant Microsoft in its corner.

    For RIM to be successful, not only does everything have to go right for the company, but its fate also hinges on the slip-ups of its competitors. At least it seems that the company now sees things clearly, but unfortunately, it does not like what it sees.

    At the time of publication, the author was long AAPL and MSFT.

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