NEW YORK (TheStreet) -- Despite posting strong August quarter results, and providing solidNovember quarter guidance, RIM (RIMM) stock is keeping close to its 52-weeklows. While RIM has its fair share of challenges, mostly as a resultof a severely aging operating system which keeps crashing, freezingand just isn't as capable as Google's (GOOG) - Get Alphabet Inc. Class C Report Android and Apple's (AAPL) - Get Apple Inc. (AAPL) Report iPhone,there are also some myths that present RIM in a too unfavorable light.
BlackBerry competes with Android and iPhone. BlackBerry issold in 175 countries. In most of these countries, BlackBerry haszero competition from Android and iPhone. In some of these countries,Android and iOS are available, but are not available on a pre-paidbasis -- which is close to 80% of the world's cell phone sales. Inmost of these countries, iPhone in particular -- but also Android --are just too expensive for most people. An unsubsidized iPhone may be$700 and up, whereas an unsubsidized BlackBerry can be had for $250even in a
vending machine at an airport or at a Las Vegascasino.
The truth is that it is only in a relatively small number of countriesout of the 175, such as the U.S. and the U.K., does BlackBerry competewith iPhone and Android -- and even in those countries, BlackBerry isavailable from numerous operators on a pre-paid basis and is a lotcheaper than iPhone and many Android devices. Yes, I know there aresome exceptions, such as
brands, but this is true in most of these 175 countries.
Americans also don't often appreciate that iPhone and Android are morecompetitive in the U.S. than in most other countries. Many desiredfeatures of iPhone and Android simply aren't available in so manycountries. For example, Google Voice is only available in the U.S., andeven Apple's signature iTunes store for some products, iBooks andother critical features are not available in all countries.
In reality, BlackBerry's main competition in a majority of the 175countries is
, and to a lesser extent basic old-style cell phonesfrom
. In this fight,BlackBerry has been gaining market share every day.
New subscriber count guidance is fishy. On the conferencecall a week ago, RIM stock reacted negatively after management statedthat its policy was to move away from subscriber guidance. While thismay sound suspect at first, there is a really good explanation for it.
An increasing degree of BlackBerries sold worldwide are to people whodon't use email. This may sound doubly fishy to a U.S.-centricanalytical crowd, but the fact is that most people in the world havenever used email or for that matter a PC with a browser. Theirequivalent of our email is SMS. As a result, they use their newBlackBerry for massive SMS volumes, but not email or web surfing. Forthis reason, they don't need to "subscribe" to RIM's Internet service.
The result of this is that BlackBerry ends up selling more and morehandsets to people who don't show up in subsequent statistics.BlackBerry gets a good margin on the handsets, and may up-sell thesepeople to email and other Internet services some time down the road,but for the near future, these sales go into a de-facto black holewith the only certain money collected up-front. And this shows up inrevenue and profit growth, but not subscriber growth.
For this reason alone, it made sense for RIM to stop giving out these"subscriber" numbers -- they just don't matter as much going forward,as they did in the past when almost all BlackBerries sold were topeople who were living in "modern" countries where everyone usedBlackBerry for email. The revenue and profit numbers will simplyspeak for themselves.
Tablet as "companion device" is a joke. The only thingabout most of the reporting to date on the subject of the BlackBerrytablet that's a joke, is the inconsistent reporting itself.Commentators have made fun of this "companion device" concept assomething quaint and reminiscent of Palm's failed 2008 "Foleo"product, which ended up stillborn.
The alleged definition of this "companion device" concept is that thetablet won't have cellular connectivity, but rather only WiFi. Inother words, the same thing as approximately 80% of all iPads sold todate. Are these commentators criticizing the iPad as a joke too? Ofcourse not, but this only reveals that they apparently don't know whatthe heck they are talking about. Clueless, and shamelessly so!
A WiFi-only iPad is also a companion device, in that it will onlyconnect to the cellular network using a device offered by Sprint and
Wireless such as the the Sierra Wireless Overdrive, the HTCEVO, the Samsung Epic (all on Sprint), the two Palm devices Pixi andPre Plus (both on Verizon Wireless) and the Novatel MiFi (on bothSprint and Verizon Wireless). There is nothing wrong, quirky orotherwise quaint about this approach. Some consumers prefer it;others don't. Clearly the vast majority of Apple's iPad sales --probably around 80% -- are in this "companion device" format.
To further show how insane the commentary has been with respect to theprospect of a BlackBerry "companion device," let'stake the initial comments made about the Samsung Galaxy tablet,introduced a couple of weeks ago and expected to become available byNovember or so. Initially, it appeared that this Samsung tablet wouldonly be offered with a cellular subscription, i.e., the opposite of a"companion device." The bloggers screamed bloody murder! How dareSamsung not offer a WiFi-only -- i.e., a companion device -- version?
Only a few days later, commentary from Samsung appeared to havesuggested that a WiFi-only version was indeed also going to beoffered. The tech bloggers shouted a big sigh of relief. Well, gee,how about some of the same feelings for BlackBerry alleged similarapproach, then?
Of course, we don't know what the BlackBerry tablet will look like,when it will be offered or any other details for that matter. But canwe please have any consistency in the criticism of it, even on theterms assumed by the commentator assailants? You can't have it bothways. You can't praise Apple and Samsung for offering the exact same"companion device" concept -- and in Apple's case be extremelysuccessful in doing so -- while at the same time criticizing BlackBerryfor it allegedly planning to offer the same concept.
Perhaps BlackBerry will offer its tablet in both kinds of versions,just like Apple does, and which Samsung apparently will do? If so,will these early inconsistent critics give up and recognize thatBlackBerry will have a device for every person's preference? I thinkthe real answer is that these commentators don't really know what theyare talking about, and they never stopped to ponder their (lack of)analogy with the other tablet products offered.
The bottom line is that while BlackBerry has huge challenges in termsof an urgent need to come up with a brand new operating system, it hasbeen unfairly vilified for several things where BlackBerry is in factdoing a lot better than the critics suggest. The basic revenue andEPS numbers support this. If BlackBerry can only get away from anoperating system which takes me almost half an hour (yes, I kid younot) to reboot, and which doesn't crash and freeze all the time, itcan continue to have a great and rapidly growing business, deservingof a much higher set of multiples.
For this turnaround to work, it would help if the negative mythsaround RIM are crushed. That said, its flaws and challenges aside,RIM isn't the first player on the world stage to be misunderestimated.
At the time of publication, Wahlman was long AAPL, MOT, RIMM,GOOG, CLWR, NVTL and SWIR; short NOK and MSFT.
Anton Wahlman was a sell-side equity research analyst covering the communications technology industries from 1996 to 2008: UBS 1996-2002, Needham & Company 2002-2006, and ThinkEquity 2006-2008.