Canada-based smartphone-maker Research In Motion (RIM) has unveiled its fourth quarter and year-end results for fiscal 2008 (year ending February 28, 2009), wherein it has achieved a much better than expected performance in terms of revenue and customer growth.
The earlier news from semiconductor maker Texas Instruments that demand for components is beginning to recover has prompted a revival in the fortunes of handset makers and component suppliers alike on the stock market, as worried investors start to relax.
But a closer look at RIM’s figures show that the BlackBerry maker’s margins are still under considerable pressure as the company is increasingly relying on the ever-fickle consumer market and is having to ensure that its devices become smarter yet cheaper. Revenues in Q408 came in at $3.46 billion (up by 24.5% quarter-on-quarter and by 83.9% year-on-year). However, sales costs also rose, by 37.5% q-o-q and by 127.4% y-o-y, effectively meaning that gross margins fell from 51.4% in Q407 to 40% in Q408.
Approximately 83% of revenues came from the sales of devices, either directly or (more often) through partners such as network operators and distributors. A further 12% of revenues came from sales of software, suggesting an upturn in demand for the company’s core operating system (OS) programs and value-added software.
It will be interesting to see how the revenue breakdown will change in forthcoming quarters as users begin downloading applications from RIM’s newly-opened app store, though I would expect relatively slow growth in this area for RIM than at, say, Apple or Nokia, given that many BlackBerry users are enterprise customers and have little or no need for the kind of consumer-centric applications that will invariably flood the new store.
RIM claims that it shipped approximately 7.8 million devices in Q408. All told, the company shipped around 26 million devices in 2008. By the end of February, there were around 25 million active BlackBerry subscriber accounts.
These are very respectable numbers for RIM, particularly at a time when middle-of-the-road vendors such as Motorola and Sony Ericsson are rapidly losing traction and as consumers’ needs polarise into two camps: entry-level devices and high-end smartphones.
But RIM must now consider whether to stay focused on the high-end device market or join Nokia, ZTE and others in addressing the burgeoning low-cost/entry-level handset market (which represented well over 530 million devices in 2008, according to Nokia). Clearly, the high-end sector is becoming over-crowded and some dilution of RIM’s market share can be expected, particularly if it can offer no real innovations in terms of form factor or user interface at the smartphone level.
Margins in the entry-level market will be tiny, but with at least 70% of all new subscriptions in the next five years expected to hail from emerging markets and low-income economies, perhaps RIM ought to at least consider addressing this growth segment with a new iteration of its core product?
Tags: app stores, Apple, application stores, BlackBerry, components, consumer, customers, device shipments, emerging markets, enterprise, entry-level, form factor, high-end, key performance indicators, KPIs, low-cost, low-income economies, market share, mid-range, mobile applications, mobile devices, mobile handsets, Motorola, Nokia, operating systems, OS, quarterly results, Research In Motion, RIM, semiconductors, smartphone, Sony Ericsson, Texas Instruments, UI, user interface, ZTE
RIM’s movement toward lower-end and consumer-oriented devices reinforces the carriers’ movement in that direction and the consequent decline in resources supporting corporate accounts. This has been a trend for a number of years. The carriers have tried to off-set some of that decline in human resources by adding self-service portals, but overall corporate telecom managers can only rely on their carriers for so much before using their own resources.