Sizing up smartphones
Will Apple make BlackBerry crumble?
Investors are worried that Research in Motion, the maker of the smartphone no investment banker leaves home without, is straining under pressure from Apple’s iPhone. RIM’s shares slumped by 13 per cent yesterday after issuing second-quarter earnings guidance just shy of the consensus forecast.
With RIM’s stock trading at a giddy 37 times 2008 earnings, it is understandable that even the slightest disappointment elicits a swift, sharp reprisal from investors. But the specific threat from the iPhone looks overplayed. The launch of a faster, $199 version next month will no doubt tempt millions more new converts into the cult of Apple. Some 60 per cent of RIM’s net new subscribers in the last quarter came from outside the corporate world. RIM is not sitting on its hands, though – weaker guidance reflects higher spending to push out a range of new gadgets. And the bulk of RIM’s subscriber base of 16m remains business users, who tend to be stickier because of the hassle of restructuring corporate IT systems.
RIM has two bigger problems. First, Apple is only one of several competitors jostling for share in an increasingly crowded market. Hence, Nokia’s recent defensive move to take control of Symbian, which writes the software that powers more than half the world’s smartphones.
RIM’s other near-term challenge is the economy: North America accounts for two-thirds of its subscriber base. More effort for growth in Europe and Asia, where RIM’s share is less dominant, is needed. RIM has considerable strengths – its main product is dubbed the “CrackBerry” for a reason. Moreover, a smartphone market expected to increase at 45 per cent per annum during the next few years should lift all boats. But the competition for a fickle consumer’s attention means higher spending and lower margins will fast become permanent features of the sector.
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