Arik Hesseldahl

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Why Verizon’s iPhone Won’t Be So Bad for RIM

January 10, 2011 at 9:29 am PT

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It was about a year ago I was talking with Charles Wolf, the analyst at Needham and Co. in New York who covers both Apple and Research In Motion. At the time he promised that the day Verizon picked up the iPhone he would downgrade RIM to “sell.” I called him this morning to ask if that were still true. His answer? No, he’s not planning to downgrade RIM even though Verizon is expected to announce its first iPhone tomorrow.

A year ago, when Wolf first made that statement, he was right. An iPhone on Verizon would have been a severe blow to Research In Motion. That it will only amount to a sting this year says a lot about how RIM’s business has improved and how its revenue base has become more diverse in the year or so since.

RIM doesn’t disclose the identities of its biggest carrier partners, but it does disclose how much the top three contribute to overall sales, though it’s not hard to figure out that Verizon has traditionally been its biggest customer. A year ago, Verizon’s sales of BlackBerry devices contributed 25 percent of RIM’s overall sales, while the next two largest customers contributed 13 percent and 10 percent, respectively. At least one of those was AT&T.

Today the picture’s different. RIM’s biggest customer–and it may still be Verizon–accounted for only 12 percent of sales in the quarter ended November, while number two and number three each accounted for 9 percent.

RIM’s growth outside its top three countries–the U.S., the U.K. and Canada–has also picked up. According to figures from IDC, in 2007 RIM relied on North America for more than three quarters of its sales. As of the third quarter of 2010, that figure was down to less than 48 percent. And in a lot of these markets carriers don’t subsidize the phone as aggressively as U.S. carriers do, and so RIM ends up having an advantage on price: $250 or so versus $500 or $600 for an iPhone. RIM is also seeing strong growth in its prepaid business outside North America. During its Dec. 16 earnings call, CEO Jim Balsillie said prepaid sales in the U.K. had grown by 245 percent year-over-year.

Then there’s Android. Verizon threw a lot of weight behind Google’s Android platform last year and has been marketing it heavily all year. The results have been mixed. A study by ITG Investment Research last year suggested that Android didn’t give Verizon the competitive bump it had hoped for versus AT&T. Meanwhile, RIM has in the last year moved closer to AT&T and in August launched the BlackBerry Torch with that carrier, though it didn’t go as well as had been hoped.

It’s not like RIM isn’t going to take some damage from the iPhone. RIM shares are down this morning more than 1 percent. But for RIM it could have been much worse. In June, when Bloomberg News reported that Verizon planned to bring the iPhone to its network, I covered the story of how investors freaked out and lopped more than 6 percent off RIM’s valuation. Now investors seem to understand that it’s likely to hurt RIM’s overall share of the smartphone market, but it won’t be the disaster that it would have been a year ago.

Meanwhile, if you haven’t seen it already, make sure you watch the interview Walt Mossberg and Kara Swisher did with RIM Co-CEO Mike Lazaridis at D: Dive Into Mobile in December.

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Tagged with: android, apple, Arik Hesseldahl, AT&T, blackberry, call, Canada, carriers, Charles Wolf, customers, D: Dive Into Mobile, downgrade, earnings, figures, Google, growth, IDC, interview, investors, iphone, ITG, James Balsillie, Jim Balsillie, Kara Swisher, markets, Mike Lazaridis, Needham & Co., NewEnterprise, partners, research in motion, revenue, RIM, sales, Shares, Torch, U.K., U.S., valuation, verizon, Verizon Wireless

comments so far. Add yours.

  • Anonymous

    I am not trying to bash RIM, I truly wish them well.

    However, it is pretty evident that to date they do not have a compelling entry in the “really smart” smartphone category, and I really do not look for PlayBook to make a very big splash.

    First – they seem to be having battery life issues (possibly due to Flash), and

    Second – When they had that video that showed “how much faster” PlayBook is than iPad, what it really showed was that the PlayBook is only half the size of an iPad. Same price, half the size. (Not good)

  • xima

    They better implement that QNX software to their phones with a fresh cool interface before this summer.. They kept on saying that phones need dual core to be as responsive as PlayBook, that was fair, but Atrix is going to be out in a few weeks with dual core!.. (And 9 hour battery life)..

    So c’mon RIM, release some sexy cool business phones asap..

  • Anonymous

    In all seriousness, who would buy a Blackberry? I can see companies making suits use them, but certainly not a consumer. I know: I owned a Tour which was so awful I thru it away and went back to iPhone.

  • http://twitter.com/#!/dutchtender m j

    android already destroyed rimm at verizon last year. there isn’t much left there for rimm which is why the stock market is not worried about it. investors know rimm has lost at verizon. rimm is becoming an also ran in the USA. it has lost in the USA.

  • Anonymous

    Surely anyone that really wanted an iPhone would already have moved to AT&T.

    So aren’t the only folk likely to buy an iPhone instead of a BlackBerry from Verizon people that need to communicate more than they need to play games. In which case, they’re likely to be reasonably happy staying with BlackBerry, especially if they use BBM.

    So I doubt RIM will feel much pain.

    AT&T almost certainly will feel pain, since iPhone users in droves will be migrating back to Verizon for their better coverage.

    The irony being that in a few months Verizons network reputation will be destroyed by the iPhones need for bandwidth.

  • http://twitter.com/cordial david carter

    a) there are no battery issues with the playbook, they are aiming at 8 hours for release in feb/mar which seems decent enough.
    b) the playbook screen is 7 and ipad 9.7 inches. Also the bezels on the playbook actual work as gesture controls so technically you could argue that this could at least partially count in the screen size. They’ve also said larger versions will be released. People seemed to take to the Galaxy tab size ok, it sold well even though it was a piece of junk.

    I think hardware wise the Playbook is a complete home run, the real worry for me is Software and the ecosystem that blackberry creates (or doesn’t) to support it. That is the reason Apple are Apple imho, they are a great media and software house. Or these days you could probably go further to say they are the world’s leaders in the UX industry.

  • John Peters

    Are you kidding? You must be living under a rock if you are not seeing many people with BlackBerrys. Teens, adults, and business people all want BlackBerry because it’s the best communication tool available. That’s right, I said communication. If I want to play games, I will go on my XBOX. There are many people like myself who use a smartphone for communicating, quickly looking things up on the web, making phone calls, writing emails, etc. No other phone can do this better or more efficiently than a BlackBerry.

  • John Peters

    It has lost in the US? Really? Is that why RIM is selling more BlackBerrys in the US than all Android put together?

  • John Peters

    You’re right. Most people buy the phone, not the network. Look at all the people with iPhone who stay with AT&T’s crappy network just to keep the iPhone. If anything, people who already have the iPhone will switch over to Verizon. What I don’t understand is why they would come out with a CDMA iPhone and not wait for Verizon to upgrade their network? CDMA is terrible when compared to a good and reliable GSM signal.

  • http://pulse.yahoo.com/_RLMYELFIBAMSLUOYL45W5NKERA Sounny

    Wallstreet folks don’t know a thing… They said Black Berry will go out of business because an Iphone, but RIMM still grows 40+ percents. Rimm beats quarter after quarter they still not happy and still think RIMM will be out of business soon. Only time will tell. Did you see a long line for an Iphone 4? Not at some places…why? because people who want an Iphone have already experience with one. Why would you think people will run to VZ and get an Iphone if they already have one. I am sure VZ network will have the same network problem soon the Iphone traffic start flowing. Why Apple goes to VZ all the sudden because they feel the pressure from other smarth phone companies and they probably reached their sale peak?

  • http://pulse.yahoo.com/_CNHL5LTM5EOO4J74VMWBU6YX3Q Ryan

    Long live RIMM!

  • m. D.

    Actually, I think you’re still stuck in the 2002.
    I see people ditching workberrys and demanding to switch to droid or iphone. this is public and private side.
    nothing smart about RIM anymore, that includes their senior management.

  • Anonymous

    a) We do not know if they will achieve this or not. Analyst Shaw Wu reports they are having difficulties doing this.

    b) A 7″ diagonal screen is slightly less than 1/2 the area (real estate) of a 9.7″ screen. While bezels do increase input area, they do not increase screen area any more than a mousepad does.

    If they are charging the same for the 7″ as an iPad (or only slightly less) then I do not see how they will produce a larger one without going over.

    I really think that most people do not appreciate the value in the low-end iPad. They certainly do pick up margin share with the added options (memory and cellular) but the low-end model may be the best buy in the whole electronics industry. Apple makes their own CPU (ok ok samsung fabs it for them – but you know what I mean) They make their own batteries. They have the best deals in RAM ad screens. They really have the system sewn up

    I wish RIM well. I think they will survive on their enterprise ecosystem for some time to come. However I think they are in a very rough place, AND if they do not get something together soon, they will not have much of a future.

    Personally, I think they should join with Nokia and Intel and make MeeGo go. (or get the other 2 on their OS) That way they can capture some of the economies of scale, and start building a marketplace and app system that is less fragmented. A Nokia + Rim partnership would be pretty formidable.

    IMHO

    Happy New Year to you all!

  • Anonymous

    Mr. Peters: One doesn’t know *where* you are getting your data but on Thu, 6 Jan COMSCORE gave the numbers that don’t *lie* RIMM is down a whopping 4.1% in the previous 3-month period.
    Citation: http://goo.gl/DlIEF
    Please cite facts before making comments on this serious website. One might begin to believe that you work for RIMM ‘s PR agency proliferating disinformation in order to sustain unrealistic valuation levels.

  • http://twitter.com/#!/dutchtender m j

    yes rimm is toast in the USA. sorry you didn’t get the bulletin.

  • http://twitter.com/#!/dutchtender m j

    surely you realize new people trade in feature phones for smart phones everyday? surely you have heard of this phenomenon?

  • Anonymous

    RIMM is going to have a hard time re-purposing QNX for a more powerful PlayBook platform let alone a weaker processing platform in next-gen mobiles. RIMM only acquired QNX a mere nine months ago. This is not enough time for Engineers to optimize an alien OS into entirely new product lines. An that’s just the power issue. GUI, I/O and other engineering adaptation issues suggest Boeing Dreamliner-style delays. In the meantime, Apple will beat them to market with iPad2 and Motorola the same with their Xoom Tablet as well. My estimation… RIMM is in a mode of accelerated revenue decline as witnessed by this Comscore analysis http://goo.gl/DlIEF . Caveat Emptor.

  • Anonymous

    So you’re saying stick with Blackberry, we aren’t as popular and you can’t do as much with us?
    I can see that.

  • Anonymous

    Well said.

  • Anonymous

    Very true indeed.

  • Anonymous

    Fact is, Rim has been losing huge market shares in North America since Apple introduced the iPhone in 2007. Android was introduced in Christmas 2009 and Rim has managed to lose even more market shares despite serious efforts trying to stay relevant to little avail while competitions are still ramping up exponentially.

    Currently more than half of Rim’s sales are dependent on the razor thin margin and cutthroat overseas market where there are no carrier supports like Verizon’s, and great competitions like Nokia, Samsung, LG rank number 1, 2, and 3 respectively butting heads with Rim.

    The North American market is about to be lost to Rim. Rim would soon be bumped down to number 4 or even lower. The same defeat in North America will repeat in Rim’s offshore markets. Rim seems to have nowhere to go in a hurry.

  • Anonymous

    Verizon customers remained with Verizon because of badly smeared publicity over the AT&T network and in some valid cases, lack of AT&T presence in the area. Verizon network reaches far outnumber AT&T if you look at the number of Verizon red dots on the network map.

    Phone for

  • Anonymous

    Verizon network coverage far outnumber AT&T thus the Verizon customers remain. Phone by phone, the Android phones beat up those archaic Blackberrys like NFL pro football team beating up on 6-year-old kids. Apple team up with Verizon for butting heads with Android. Rim is already a lost cause.

    True, as a lost cause already, Rim has nothing to be afraid of. Like the old proverbs said, you only die once, and Rim is already a walking corpse waiting to be buried with the DOA Taiwanese Playbook as tombstone.

  • Anonymous

    What can’t you do with BlackBerry?

    Hang on while I replace my battery with a fully charged replacement; switch my 32GB SD card to the video card; make a couple of phone calls without losing the signal (even on AT&T); and use BlackBerry messenger to communicate instantaneously with 30 people in my office; access my corporate network from my device; take a phone call made to my office phone; and participate in a teleconference session – all at the same time. (battery removal and sd card replacement excepted).

    Now what was that I couldn’t do with my BlackBerry?

  • Anonymous

    I have. And you raise an interesting point.

    But given Verizon has been pushing Android like crazy for the last year I’d assume the peak demand has already been sated by Android. Is the iPhone that much better than most Androids? I wouldn’t have thought so. I could see some folk switching but not hordes.

    And anyway, the question was would the Verizon iPhone hurt RIM.

    By the way John, the fact Apple is producing a CDMA device tells me they’re worried about waning demand.

    After all, they only really satisfy one market segment. Most manufactures have a range of phones for a variety of purposes.

    Apple has to develop something really great in the smartphone segment soon or face becoming yesterdays product.

    Yes, they were game changing, but they’re no longer market leaders. At least in the US that title belongs to Android.

  • Anonymous

    Yeah sounds good-for suits.