Research in Motion (NasdaqGS: RIMM) finally launched its BlackBerry 10 smartphones on Tuesday. The devices, called the Z10 (which features a touch screen) and the Q10 (with a physical keyboard), run on RIM’s new QNX-based operating system.
The company, which has suffered through a number of money-losing quarters in the run-up to the launch, has essentially bet its survival on the success of BlackBerry 10.
Early returns didn’t look promising: the shares slumped 12% on the day, but it’s important to keep in mind that the stock had more than doubled in the past three months, suggesting that investors saw the launch as a good time to take profits.
BlackBerry 10 Builds on RIM’s Messaging, Security Strengths
Still, while the BlackBerry 10 phones are universally recognized as a major upgrade over the company’s previous devices, it remains to be seen whether they will be enough to both hold on to RIM’s current clients and take market share from the Apple (NasdaqGS: AAPL) iPhone and devices powered by Google’s (NasdaqGS: GOOG) Android operating system.
Hardware enhancements include a larger, clearer screen, an upgraded camera and a dual-core, 1.5 GHz processor. On the software side, the user interface has been completely redesigned to allow much smoother transitioning between apps.
The company has also built on its messaging strength with BlackBerry Hub, a centralized inbox for all communications, including email, text messages, social media and the company’s BlackBerry messenger service. It has also introduced a predictive keyboard for the Z10 that anticipates words before users finish typing them.
In a nod to the corporate users that form RIM’s core market, the phones also feature BlackBerry Balance, which allows users to keep their work and personal activity completely separate. What’s more, corporate IT departments can control what users are allowed to access and download under the work profile, and safeguards keep sensitive information from being shared inadvertently.
BlackBerry 10 Launch Left Some Questions Unanswered
To support BlackBerry 10, the company has also rebranded its app store (essentially dropping the “App” BlackBerry App World). The device is launching with an ecosystem of over 70,000 apps, including programs like Skype and the Kindle e-book reader. However, some popular apps, like Instagram, Spotify and Netflix—are not yet available.
As well, according to a January 30 ABC News review, the Z10’s camera still trails some of its competitors, and the phone’s maps app is unable to pinpoint nearby points of interest like Google Maps can.
The company’s rollout schedule for the new BlackBerry 10 phones also raised some eyebrows. The devices will be available in the U.K. today and in Canada on February 5, but they won’t be released in the U.S. until March, with the Q10 not launching until April.
“I think the timing is slightly disappointing,” tech analyst Shaw Wu, of Sterne, Agee & Leach, said in a January 30 Wall Street Journal article. “This is a product that’s been late by arguably a year and a half. Many were hoping they’d be able to have better availability.”
Clearer Branding, Streamlined Product Lineup Are Smart Moves
In a surprise move, the company also changed its name from Research in Motion to simply BlackBerry, to match its main product. The stock will trade on the Nasdaq under the BBRY symbol. Its symbol on the Toronto Stock Exchange will change to BB.
Selling just two models of the new device also addresses a long-time criticism of the company, namely that it made too many versions of its previous phones (with names ranging from Torch, Bold and Pearl to Style and Curve). Worse, nearly all of these phones had different screen sizes, something that made life difficult for app designers.
In addition, by preserving its physical keyboard, RIM has maintained an asset that sets its product apart from other smartphones. Many of the company’s users still find a physical keyboard more user-friendly, especially for typing longer emails. Some devices that run Google’s Android operating system do offer physical keyboards, but RIM’s keyboard setup is still considered a market leader.
Investors Are Now “Looking Back at the Fundamentals”
The question for investors is whether these devices can pull RIM back into contention in the intensely competitive smartphone space. Wu, who has a neutral rating and no price target on the stock, feels the jury is still out. “Now that the event has occurred, I think investors are looking back at the fundamentals again,” he said. “When will this company reach profitability, and will this be enough to stem the tide?”
Even with the new phones, the company still faces huge challenges. For example, BlackBerry 10 is starting from a long way behind the pack. According to Reuters, BlackBerry’s global market share fell to just 3.4% in the fourth quarter of 2012, down from 20% three years earlier. In the North American market, RIM controlled just a 2% share.
The company has also struggled through several tough quarters as it spent heavily on the new devices while its users held off on upgrading their current phones. In the latest quarter, RIM shed 1 million users worldwide, dropping its total to 79 million. Revenue plunged 47%, to $2.9 billion from $5.2 billion a year earlier. The company managed to eke out a profit of $9 million, or $0.02 a share, but that was down sharply from $265 million, or $0.51, a year ago. On an adjusted basis, however, RIM lost $114 million, or $0.22 a share.
Adding to the uncertainty is continued pressure on the service fees the company receives from wireless providers. Carriers are pressuring RIM cut these fees due to rising competition in the wireless market.
“We will see pressure on pricing for BB OS-related services in order to make sure we stay relevant in our markets,” CEO Thorstein Heins said on the company’s latest earnings conference call. “However, I want to be very clear on this: service revenues are not going away.”
Investors, for their part, were unconvinced. Worries about service revenues sent the stock tumbling 26 percent back on December 21.
Bottom line: Despite their impressive debut, the new BlackBerry devices still have a long way to go to even contend with Microsoft’s (NasdaqGS: MSFT) Windows phone for third place in the smartphone space. We likely won’t get a hint of whether RIM—or BlackBerry as it’s now called—can beat those odds until at least the end of the next quarter.
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