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"Their market is not as big as we previously thought," said J.P. Morgan Securities analyst Paul Coster. "And with delays in getting next-generation networks up and running, there's a question concerning how quickly RIM can address their market."
Coster also had concerns about contenders. "Up to this point, they've been in a competition-free market," he said. "But with rivals coming out with new devices, that will have a big impact. They're still the best company in their segment, but that's not to say (the company's stock is) worth buying right now."
In some ways, RIM is similar to companies like Apple Computer or TiVo: People may love its product, but that doesn't necessarily translate to blockbuster sales. In its most recent market share figures, research firm IDCRIM and its BlackBerry device ninth worldwide.
A newthat will let third parties make BlackBerry-like devices, as well as increasing efforts to create more applications for its handhelds, will help in the long term, but analysts are tempering their short-term expectations for the Waterloo, Ontario-based company.
RIM Chief Financial Officer Dennis Kavelman said it was expected for analysts to be cautious as the company launches its next generation of products. Kavelman and other RIM executives were in Atlanta in early May for the company's first analysts day, trying to put attendees at ease.
"It's natural for them to be conservative," Kavelman said. "We've been very clear with our messaging, and this is by no means a reset of our strategy. We're just reiterating what we've been saying: We're poised for significant growth when our carrier partners are ready to launch their networks."
In early March, RIMa BlackBerry device for the U.S. market--the 5810--that adds the ability to make wireless phone calls to RIM's two-way messaging capability on the next-generation GPRS (General Packet Radio Service) wireless network.
During a conference call following the company's fourth-quarter financial results, though, RIM co-CEO Jim Balsillie said, "Carrier rollouts of GPRS continue to take longer than expected."
This hiccup could translate to a contraction in the potential impact of the BlackBerry 5810, and a hit to RIM's bottom line.
"RIM's success is tied to the successful rollout of new (next-generation) wireless data services and applications by major wireless network operators in the U.S. and Europe," UBS Warburg analyst Jeffrey Schlesinger wrote in a research note May 1. "Any substantial delays in network rollouts could delay end-user demand for RIM products."
So, for RIM, the sooner that rollout happens, the better.
A new drug
RIM is known for making the BlackBerry two-way messaging device and for providing the corresponding service that primarily allows subscribers to wirelessly update their calendars and send and receive e-mail remotely. One of the company's biggest achievements has been the development of a feature that lets subscribers synchronize the data on the devices with that on their main computer.
Remote e-mail access rapidly made RIM popular with corporate road warriors. Among the high-profile technology executives who use the device are HP President Michael Capellas and Dell Computer Chief Executive Michael Dell. Dell's company eventhe BlackBerry device in late 1999. HP is also reselling the device under its iPaq brand name. At technology conferences, the clicking of Blackberry keyboards can be heard as a constant background noise throughout many keynote speeches. Because of its addictive qualities, the device has garnered the nickname CrackBerry.
Calling all BlackBerrys
Marc Guibert, brand manager, Research In Motion
RIManalysts' estimates for its fiscal fourth quarter, but the company cut its sales and earnings outlook for the current and future quarters. RIM now expects revenue for the current quarter to be in the low $70 million range, down from $75 million to $80 million; for the full fiscal year, the company expects revenue of $375 million to $425 million, below the $440 million analysts were expecting.
It ain't over...even when it's over
This scenario isn't new when the talk turns to technology companies--numerous businesses are hurting because of a slowdown in technology spending--and RIM has the good fortune of having cash and marketable securities of $644.6 million as of March 2 to ride out the storm. But some analysts are questioning whether the company will have good times even after the rough seas subside. The main issues are the size of the market and new potential competitors.
Although approximately 14,400 organizations use the BlackBerry, its subscriber numbers remain modest. In its latest financial report, RIM said its total number of BlackBerry subscribers increased by approximately 32,000, to about 321,000, during the fourth quarter of fiscal 2002.
Financial analyst Andrew Scott of Needham calls that rate of signing up subscriptions "tiny."
"Assuming the majority of RIM's customers are U.S.-based, the 320,000 BlackBerry subscribers represent a 0.25 percent penetration rate into the 130 million U.S. cell phone subscribers," Scott wrote in a research note. "Its success in the handheld organizer market has been modestly better: RIM claims 2 percent of the PDA market."
However, this customer indifference may be more a sign of the size of the market than a reflection of RIM's ability to attract subscribers. Other companies are in the same boat.
In late March, Handspring startedits much-anticipated combination cell phone and handheld, the Treo. The company shipped 47,000 devices in the quarter, although only an estimated 13,000 found their way to consumers by the end of the three-month period.
Handheld market leader Palm alsointo the wirelessly enabled device market with its i705. But after about the initial week of sales--the company said it exceeded expectations for its first week, selling 13,000 devices--the company declined, during its most recent quarterly financial call, to disclose the number of units it sold up to that point.
Further competition entered the market this week when start-up Good Technologyits efforts, which are similar to RIM's.
"We remain skeptical of the overall market size, especially given the price-point of the product and service," J.P. Morgan's Coster wrote in a research note May 1.
High customer turnover is also affecting RIM's prospects, according to Coster. The 32,000-subscriber increase represents net growth. But technically, RIM signed up 60,000 new subscribers and endured 28,000 deactivations. The high ratio of deactivations to activations was the result of cutbacks in the financial industry, one of RIM's key markets.
Deactivation could dampen future hardware sales. Although some of these customers may reactivate service contracts, they may decide to use their old devices.
Finding the right price
The company has been making efforts to address the issues that it has control over, such as the cost of the device. Some analysts that the BlackBerry's price tag hurt RIM's deal with AOL to sell a rebranded version of the gadget.
RIM sells six BlackBerry devices--the 850, 950, 857, 957, 5810 and 5820--which range in price from $400 to $500, with a monthly service fee of $40 per month. With the 5810, subscribers also need to sign up for a voice service plan. In contrast, cell phones can cost next to nothing, with service plans ranging from $25 to $200.
Palm's i705 device, which also offers e-mail capabilities, costs $449, and up to $40 per month for service. But consumers can also buy standard, non-e-mail enabled Palm devices for $150. The majority of Palm devices and Pocket PCs, in fact, are used as basic organizers.
In April, RIMit has developed reference designs, or hardware and software blueprints, to aid manufacturers in getting products using RIM's technology to market faster and less expensively. Manufacturers can now more easily add RIM's technology to their products. This could help future revenue, in addition to boosting the number of devices that use RIM's technology.
"Reference designs are typically sold to manufacturers on a per-unit royalty basis, thus carrying high gross margins," BMO Nesbitt Burns Research analyst Ray Sharma wrote in a report April 4.
The benefits of the company's reference designs aren't likely to pay off in the form of revenue until next year, but RIM continues to grow its market with new deals such as a recentlyagreement with Hutchison Telecom, which is launching RIM's BlackBerry service in Hong Kong and eventually in other parts of Asia.
RIM also continues to develop new hardware and will launch new products over the next 18 months, including BlackBerry devices with color screens, integrated speakers and removable batteries, according to UBS Warburg's Schlesinger.
RIM has also transitioned its operating system over to Java, which should help attract corporations trying to justify the device as more than an e-mail tool. With a Java operating system, companies will be able to more easily write or modify custom applications for use on the BlackBerry. Those applications could, for example, allow a subscriber to download information from a company server to be used remotely, such as sales data for a customer. However, the payoffs from the Java efforts aren't expected this year.
"While Java should eventually solve RIM's platform issues," analyst Charles Wolf of Needham wrote in a note May 6, "enterprise-grade applications should not be available until 2003."
And despite the company's efforts to attract more customers, 2002 will likely remain a challenge for RIM--barring an unexpected hairpin turn by the technology industry.
"A sharp increase in information technology spending could change RIM's fortunes," Wolf wrote. But 2002 isn't likely to be "a breakout year."