Research In Motion Limited (NASDAQ:BBRY) is the leading provider of enterprise mobile services and sells smartphones. RIM generates most of its revenues through the sale of its popular BlackBerry smartphone which has become highly popular for corporate customers around the world, but its' business services generates the majority of its' gross revenue. RIM is rather unique among its peers in that it not only produces the BlackBerry handsets but also offers enterprise mobile services for which it has developed a veritable monopoly.
Founded in 1984 and headquartered in Ontario, Canada and led by CEO Thorsten Heins, Research in Motion (RIMM) is a leading manufacturer of wireless devices, particularly smart phone, and is the leading provider of mobile enterprise services, working to expand availability to all platforms, such as the highly successful iPhone and Android mobile operating systems. Though RIM is most known for its popular BlackBerry smart phone, the company offers a number of other products and services geared toward wireless data access and has been steadily and swiftly increasing its' presence in enterprise mobile by design or attrition for the past two years.
Originally, the company rose to fame for offering enterprise customers access to their corporate e-mail using their BlackBerry devices, eliminating the need for a separate, wireless-only e-mail account; the BlackBerry system actively "pushes" e-mail to the device, the cornerstone of RIM's claim to fame in the early 2000s. This decade more of experience has allowed RIM a significant head-start over all competition within the enterprise mobile market, with the most comprehensive offerings currently available.
RIMM's business is primarily divided into three segments: Hardware, Services, and Software & Other.
Currently, RIM does not break out gross margin or income per each segment even though their comments about higher growth rates and gross margins for services indicate that income from services may almost be equal to those from hardware.
RIM primarily manufactures smart phones, or devices that combine the functions of a personal digital assistant (PDA) with those of regular mobile phones. RIM is most famous for its BlackBerry wireless device, which has become one of the most popular smart phones for corporate customers. The majority of RIM's revenues come from sales in the enterprise market.
This segment has been losing market share at a high rate and is rapidly diminishing in shares of revenue and especially net income.
Sales in this segment are declining at a 17% annual rate.
RIM operates its own infrastructure that provides wireless data and e-mail access to its customers. RIM charges wireless providers a monthly infrastructure access fee, and the carrier then bills individual customers for the service. Though RIM's wireless data infrastructure is primarily used by BlackBerry devices, RIM does license its technology to other cell phone manufacturers. This allows other, non-BlackBerry devices to send and receive data using the same network technology. These BlackBerry Connect and BlackBerry Built-In services are available on a variety of smart phones, allowing RIM to earn revenue from customers who don't even own a BlackBerry.
RIM has swiftly expanded its' business services beyond email into a complete integration of business processes and mobile software, now commonly known as enterprise mobile.
This segment has been growing at the highest rate since FY2010 and now provides the most income.
The main business divisions of this segment are:
RIM also provides a comprehensive line of services to create fully customizable applications for enterprise mobile as well as integration into non-mobile software.
RIM's BlackBerry smart phones include a proprietary operating system, the BlackBerry OS. The company also offers a variety of other programs designed to utilize the BlackBerry's hardware features. These programs include a personal information manager CNBC (PIM) that manages contacts, appointments, and memos, a GPS positioning and navigation program, games, and mobile Internet programs.
RIM also sells accessories, technical support services, and a variety of repair and maintenance programs. Though revenues in this segment have been growing steadily, they have been accounting for a smaller and smaller percentage of RIM's total sales.
RIM has been expanding at such a rapid rate into international markets while swiftly losing hardware market share in Anglo markets that the United States, United Kingdom, and Canada are now reported as a single line item vs. the rest of the world.
The United State, United Kingdom, and Canada now represent 56% of 1HFY2012 revenue.
"In areas of lower bandwidth (emerging markets), [push messaging] has been very popular with carriers. RIM generates approximately $4 bln in annual fees for use of its network."
Now that the vast majority of existing smartphones and nearly all new smartphones are either iPhones or run the Android operating system and are being more and better received in the workplace, culminating in a policy now known as BYOD, presenting new opportunities, RIM has recently begun expanding compatibility of its' products and services with those systems.
In response to this reality, RIM will soon release security software for iPhone and Android to easily and securely connect to BlackBerry networks.
"RIM has the best mobile management platform in the business. Its recent announcement to extend management to iOS and Android is a smart move, and if sold properly will be a big hit. RIM has many thousands of system administrators that know and like BES. BlackBerry Balance technology that enforces the separation between corporate and personal data is big plus for 'Bring Your Own Device' shops."
Consciously or not, RIM has been moving away from less profitable and highly competitive hardware to highly profitable and less competitive services, possibly similar to IBM's 90's strategy since "gross margin percentage for BlackBerry handheld devices and BlackBerry PlayBook tablets are generally lower than the Company’s consolidated gross margin percentage" and services are currently growing at a 30% annual pace while hardware is declining at 17% clip.
"ThinkEquity analyst Mark McKechnie estimates that, by next fiscal year, service revenue, combined with revenue from the much-smaller software business, will account for 24% of revenue but a mammoth 71% of RIM's operating profit."
"RIM has been long known for its push messaging service. Push is more immediate and productive. It uses less battery power. Importantly, Push messaging could be a real plus for the corporate applications (especially workflow oriented) that everyone wants to build and deliver to tablet devices. We believe that RIM's most valuable IP is in its secure, push messaging and the network that delivers it.
RIM's subscriber base is growing at a 40% annual rate by quantity while sales of phones by quantity are less than required to replace and grow existing BlackBerry phones.
As a result, the term "BlackBerry" is becoming known less as a phone and more as a comprehensive business network service.
RIM will release software for full support of all smartphones in March 2012.
Because of horrible sales, in December 2011 RIM announced a large write-down of tablet inventory, acknowledging that the only way to sell them would be for a loss, indicating a possible initiation of an exit from hardware, starting with tablets.
If RIM is in fact exiting the tablet hardware market and since RIM's tablet is the only device being sold with RIM's latest mobile OS then RIM could be halting all investment in mobile OS development.
RIM has delayed selling phones with the latest QNX operating system until late calendar 2012 when they may be quietly cancelled.
With the delay of QNX phones and management's guidance for Q4FY2012 that hardware sales will constitute the first year over year decline at a massive potential 22% rate by units and that either a spike in hardware average selling prices to approximately $330 (a 10% increase over the past full two calendar years' average to FY2010's) or a more likely potential $1.2 to $1.3 billion in services revenue accelerating to a 45% annual growth rate, it is possible that management has begun to either divest the less and unprofitable hardware and/or has refocused upon services.
Research in Motion competes in several different areas of the wireless industry; it manufactures handsets, produces software such as its BlackBerry operating system, and offers its own services and infrastructure. This sets RIM apart from all of its competitors, who generally operate in hardware and mobile software and not enterprise mobile services.
At the current forecasted rate of 22% per annum decline by units, RIM will be fully exiting the hardware business within a matter of years.
As of 2011, RIM is effectively alone in this rapidly growing market. "No other smartphone company has [enterprise mobile] assets. No enterprise software or SaaS company has these [enterprise mobile] assets."
"IBM said [in November 2011] it will introduce a service designed to help companies make sure that the myriad devices employees are now bringing into the office--from smartphones to tablets--are secure and protected from threats like malware and data theft."
In December 2011, Microsoft announced that it was partnering with a solutions provider to "enable iPhone and Blackberry interoperability with Microsoft's Remote Desktop Services, Windows Azure, Active Directory in Windows and SharePoint."