Black­berry's death greatly ex­ag­ger­ated

Finweek English Edition - - FRONT PAGE - SI­MON DIN­GLE si­mond@finweek.co.za

IT’S THE WORST of times for Cana­dian smart­phone man­u­fac­turer Re­search in Mo­tion (RIM), de­vel­oper of the Black­Berry range. Rev­enues are up and it’s dom­i­nat­ing emerg­ing mar­kets. In South Africa, the Sun­day Times’ “Gen­er­a­tion Next” sur­vey re­ported it as the coolest brand in the coun­try, where it’s out­selling its com­peti­tors by al­most 10 to one. Spot the prob­lem: in tan­gi­ble terms, RIM is alive, well and grow­ing – ev­ery­where ex­cept in the United States, where it’s lost its grip on the cor­po­rate mar­ket. And that’s enough for North Amer­i­can an­a­lysts to have called the end for Black­Berry.

In Fe­bru­ary RIM’s stock was trad­ing at al­most US$70. By July it had dropped to $26/share. Its mar­ket cap, ap­proach­ing $90bn last year, is now down to $13bn. Yet in­ter­na­tional rev­enue is up 67% year-onyear and even in the US it’s up 16%. Can the man­u­fac­turer’s fu­ture re­ally look that bleak?

Ac­cord­ing to the naysay­ers, RIM has lost the plot, missed the point with smart­phones and its joint CEOs are fight­ing. It isn’t in­no­vat­ing or get­ting to mar­ket as quickly or ef­fec­tively as Ap­ple or the slew of An­droid de­vice man­u­fac­tur­ers. And some of that’s true. But it isn’t af­fect­ing sales.

“Cap­i­tal mar­kets are clearly not al­ways con­nected to re­al­ity,” says Pa­trick Spence, RIM’s MD for Europe, the Mid­dle East and Africa, adding: “But we re­main fo­cused on what we can con­trol in terms of de­liv­er­ing to cus­tomers. An­a­lysts are con­fus­ing sales with mar­ket share. RIM’s sales are hold­ing steady but our mar­ket share is de­creas­ing. One of the main rea­sons for that is the smart­phone mar­ket is ex­plod­ing.”

Not long ago Black­Berry was the only smart­phone brand in the mar­ket. Now there are many, many more.

Re­search and con­sult­ing firm World Wide Worx MD Arthur Gold­stuck says RIM is ef­fec­tively be­ing as­sailed by a mob. “At the mo­ment it’s like a feed­ing frenzy [among the me­dia], with ev­ery­one try­ing to char­ac­terise RIM as col­laps­ing. It’s the di­a­met­ri­cal op­po­site of what’s hap­pen­ing with Ap­ple prod­ucts. The me­dia be­came slav­ishly ad­dicted to the Ap­ple brand, re­gard­less of what it did.”

Adds Gold­stuck: “The re­al­ity is RIM’s mar­ket share is plung­ing. How­ever, an­a­lysts who are only fo­cus­ing on that are mis­rep­re­sent­ing the ac­tual is­sue. The other fac­tor is an­a­lysts and the me­dia are so ob­sessed with the US mar­ket they don’t look at RIM’s suc­cess in the de­vel­op­ing world. When you look out­side North Amer­ica, West­ern Europe and the Pa­cific Rim, Black­Berry is one of the fastest grow­ing smart­phone brands in the world.

“Hav­ing said that, it can be­come a self-ful­fill­ing prophecy if RIM’s ex­ec­u­tives don’t get their act to­gether. Their lack of in­sight into what’s hap­pen­ing to the brand – and also their lack of in­sight into their own re­sponse to the mar­ket – could well doom the brand. RIM needs a shift sim­i­lar in na­ture to Nokia’s. They need a mas­sive wake-up in­ter­nally.”

The Nokia anal­ogy is an in­ter­est­ing one. The Fin­nish man­u­fac­turer is also at an all-time low in terms of mar­ket per­cep­tion. Its strat­egy – spear­headed by new CEO Stephen Elop – was to part­ner Microsoft.

And here’s the bit you haven’t read any­where else (I hope): RIM has the same plan. It brought Microsoft CEO Steve Ballmer on to stage at Black­Berry World in Florida this year, where he an­nounced Microsoft con­sid­ered RIM to be “a key strate­gic part­ner”. RIM has com­mit­ted to us­ing Microsoft’s ser­vice layer on smart­phone and tablet de­vices – with­out com­mit­ting to its op­er­at­ing sys­tem, as Nokia has.

Still, that places RIM firmly in Microsoft’s camp. The real smart­phone war is be­tween Microsoft, Google and Ap­ple be­cause it’s about com­put­ing ecosys­tems and ser­vices – not de­vices. Black­Berry, Nokia, HTC and other man­u­fac­tur­ers (ex­cept Ap­ple) are foot sol­diers in a much big­ger war. RIM knows that. It did in­vent the smart­phone, af­ter all. And it would be silly to bet against RIM, even if Wall Street is. If you’re a bet­ting per­son then RIM at $26/share looks great.


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