Research In Motion Q3 Analysis and the BlackBerry Roller Coaster

The BlackBerry Roller Coaster!
By Chris Umiastowski on 20 Dec 2012 08:02 pm
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Tonight we got to see another quarter of BlackBerry financial performance and hear the management team talk about progress towards the launch of BlackBerry 10. In short, the results were close to analyst expectations, management is executing well on its cost cutting plan, cash performance is excellent, but the market was given some spooky signals about the future of service revenue, which sent the stock tumbling in after hours trading.

First, let's take a quick look at the results from fiscal Q3. RIM generated $2.7 billion in sales, just a bit higher than the consensus estimate of $2.66 billion. They shipped 6.9 million BlackBerry devices, just shy of the 7.2 million that analysts expected. The company lost $0.22 per share (adjusted for restructuring and a huge one-time tax gain), versus analyst expectations for a loss of $0.35.

The global subscriber count dropped by about one million to 79 million. Analysts expected a drop of about 0.4 million. To be fair, we really don't know if RIM lost more or less than a million subscribers because they only round to the nearest million when they report. But I think it's safe to say that the BlackBerry subscriber base has proven to be pretty stable during a huge transitionary period for the company.

The big financial news, though, was the company's cash generation. They actually brought in another $600 million in cash during the quarter, putting the cash balance at $2.9 billion. They started the year at $2.1 billion and funded their "CORE" restructuring program, aimed at saving $1 billion in annual costs. Even after funding this program, they still managed to bring in plenty of cash.

I know a few readers are wondering how RIM can lose money, but still generate cash. It's a very simple answer in the form of two words: Working capital. The biggest component here, for RIM to move, is inventory. If you sell inventory that you already paid to build, you generate cash despite actually losing money by accounting standards (RIM's hardware business is not profitable right now).

RIM acknowledged that the cash they brought in this quarter will be re-invested in the BlackBerry 10 launch. Still, analysts were not expecting this solid cash performance, and it means the company has much more of a cash cushion on which to advertise and build inventory for the big BB10 launch.

In fact, during the first 90 minutes of after-market trading, RIM was actually trading about 10% higher than its closing price of $14.12. But towards the middle of the conference call, RIM dropped a bit of a bomb on investors sending the stock tumbling such that, as I write this, it's actually down 11% to $12.53. Holy volatility Batman! Ah - it's par for the course with RIM.

So what's got the market spooked? Oh nothing more than the fate of $1 billion in quarterly service revenues. This is something I've written about plenty of times in the past, but I'm still seeing lots of questions for a deeper explanation. Let me give you exactly that.

There are two types of BlackBerry subscribers - those who are on a BlackBerry Enterprise Server (BES), and those who use BlackBerry Internet Service (BIS). BES is enterprise, BIS is consumer (and pro-sumer). When RIM struck deals with carriers many years ago, they arranged a fee structure whereby BlackBerry subscribers would pay the carrier for the monthly data plan, and carriers would then pass along a portion of this fee to RIM.

BES subscribers earned RIM a healthy fee, initially as high as $10 per month, but more likely in the $6-7 range today. BIS data plans came along later, along with huge geographic expansion by RIM, and those subscribers generated the company fees of about $4-6 per month initially, which has now dropped substantially (mainly due to developing market growth). I'd estimate it now sits at $2-4 per month in most markets.

If I had to guess I would say BIS subscribers make up about 80% of RIM's total subscriber base. BES subscribers are the remaining 20%. And this is where the risk lies. RIM generates about $1 billion in quarterly revenue from service fees, which is now starting to drop.

On tonight's conference call, Thorsten Heins said something that we've never heard from RIM before. He acknowledged that, going forward, there would be a change in RIM's service fee structure. Some customers will still want the "full package", including security, mobile device management, and BES 10. They will generate the highest fees for RIM. But some customers won't need any extra services from RIM and will therefore generate no fees at all for Team BlackBerry.

That was the knockout punch for the night.

Sure, Thorsten said the service revenues "aren't going away". Technically he's right. As long as RIM has an enterprise base, or perhaps a professional consumer base that wants some kind of extra service from RIM, they'll generate some fees. But with (my estimate of) 80% of their subscribers being on BIS plans, and so many of those folks being in emerging markets, I think it tells us that the vast majority of RIM's current service revenues will disappear.

The only two questions are: 1) How long will it take; 2) What can RIM to do replace this lost revenue.

They'd like to monetize BlackBerry Messenger. But to be honest, when I listened to management's discussion of this concept, it sounded like a desired plan rather than a concrete strategy. I am not convinced they know how they'll monetize BBM yet. Maybe they'll do it behind the scenes with services like BBM Money. Maybe there are other ideas. All I'm saying is management didn't sound like they had a firm plan yet.

I don't think the service fees will disappear quickly either. In many markets BB10 will be slow to take off. It will be too expensive for the masses. This will potentially buy RIM some time to come up with a strategy to replace the revenue.

But it is a real worry. With nearly $1 billion in quarterly revenue, dropping almost entirely to the bottom line, every dollar lost is a dollar burned. If this revenue were to be cut in half, then at its current operating performance, RIM would run out of cash in about 5 quarters. Scary.

Of course I don't expect that to happen. They're rolling out BlackBerry 10 very soon, and people are already placing pre-orders. The average selling price (ASP) of these devices will be much higher than BlackBerry 7. RIM should be back to making money gain on hardware. This will excite investors, most likely. But it doesn't squash the bigger long term issue - how does RIM get through this service revenue crisis? I don't think I'm being harsh by calling it a crisis. I'm being realistic.

I'm still rooting for Waterloo and Team BlackBerry. I would love nothing more than to see a brilliant plan that sees RIM continue to generate healthy service fees and carry forward with a profitable hardware business.

Can they do it?

169 comments

citystars41

as the great Bob the Builder once said, "Yes We Can!"
#BB10Believe

Kishore Thaakur

Can someone please explain: HOW THE HELL are the service revenues gonna dry up? Here in India, I pay $10 a month to Vodafone for full BIS (BBM + Push Mail + Unlimited Browsing). This is apart from my Calling Plan. They also have a BIS Lite (Only BBM + Push Mail, No Browsing) for $4 a month.

So when Thor says that service revenues are gonna dry up, does he mean BIS is gonna be free in 2013?

biohazard79

at least you have unlimited browsing...
here in belgium we pay 10€/month for full BIS but with only 250Mb of data traffic

phamduysc

Here in Vietnam, we must pay only 2$ for full BIS service. I think we lucky :) Waitin' for Z10 lol

samvel2001

In Armenia it cost around $25.00 bbm+push email+ unlimited browsing(except for youtube, they charge you for it separately)

Fnord

They are referring to the amount of your plan that the carrier kicks back to RIM - not the amount you pay to your carrier for your plan.

RIM is the only carrier partner that gets money back from carriers in this fashion and there seems to be less and less reason for them to be paying...

md03wx

Scary stuff for RIM.

Kevin Michaluk

It's a HUGE business transition that RIM is going through, but I think it's amazing just how well the company has been executing through the change since Thorsten Heins et al have taken the reigns. 

Honestly, despite the "scary stuff", I simply have more faith in RIM and BlackBerry than ever before, because of the people. New people at the top, and they're bringing out the best of everybody throughout the organization through and through. Can't wait for BlackBerry 10!

mortys11

Rim will be sold whole or in parts in the next 18 months !

feldmen01

You must be a billionaire with you accurate predictions!

RubberChicken76

How fortunate we are that Donald Trump has taken the time to post on our humble forums.

SEAWARRIOR

i'm trying to be as optimistic as most but if "10" flops he may have a point,,, you can bash it down or fan it up, truth is no one knows...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

RubberChicken76

I can align to saying "no one knows" a lot more than I can declaring "RIM will be chopped up and sold in 18 months."

The coming quarters will reveal what is going to happen.

Thorsten has proven to me that he's got the operations know-how. Now I want to see his product strategy and marketing launch know-how.

birdman_38

BlackBerry will become a Microsoft property by this time next year/early 2014.

BruvvaPete2

Vic Alboini is that you?? Freaking Donkey

cappo40

You were one that said we were going to die today, weren't you?

Rub3n5

Kevin, I'm on your side man... I really am. And I'm as die-hard a BlackBerry fan as the next one. But what Chris presented here for the first time has me worried that RIM might not be around in 2 years. This revenue has to come from somewhere and it has to be in large sums... and it has to come fast.

I can honestly say this may have been the worst news we've ever received as BB Fans.

tharrison4815

Where does Apple's money come from?

Rub3n5

Back in the day when RIM recorded record profits, probably 90% of it was from service revenue alone. RIM has never made money in the same fashion that Apple or Google does, so this just puts more pressure on BB10 to 'make money the same way Apple does'.

JakeTheCat

It does not at all put any more pressure on them to make money the way others do. Thorsten is on record as saying the service revenues "aren’t going away". If they were going away and he knew it then he made a deliberate material mis-statement and would be liable for it. I'm sure he's not so stupid as to go on record with a flat-out lie on something so important and easy to verify. So when Thorsten says the service revenues aren't going away I believe him.

The stock market appears not to believe him. It is not his fault the market has neither the desire nor creativity to figure out how and why what he said is true. Half-wit analysts just focus on the easy sound bite, slap a sell rating on the stock, and ignore the fact that it would make absolutely no sense for RIM to kill its cash cow deliberately and proactively.

So why not try to be smarter than the average analyst by taking a minute to figure out what actually makes sense (and if there's any money to be made) here?

It is not hard to imagine RIM providing - and charging - BlackBerry customers for the "full package", including security, mobile device management, and BES 10. How could it be hard to imagine when that is what they already do? And the service revenues don't go away in that situation.

But how does that fit with the announced change in RIM's service fee structure? We know that RIM has been looking at licensing out their operating system so it is also not hard to imagine, at the same time, that some customers would want to use BB10 on a phone manufactured by someone other than BlackBerry but maybe won't want/need some (or any) of the extra services from RIM. In that case a firm like LG, for example, could pay RIM a licensing fee for the OS but not pay for - or receive - some/all of the other RIM services that give the premium BlackBerry Experience. It only makes sense for RIM to have different service fee structures (including zero service fees) in place depending on the situation.

So the business model adjusts to include the status quo in conjunction with more licensing of the OS, with various service offerings and corresponding fees attached and... Voila! The service revenues "aren't going away." End of story.

MichealBerry

Kevin, it seems the worst the news gets re: RIM the more optimistic you become. I am not only worried for RIM.

"People who think they know everything are a great annoyance to those of us who do".
Isaac Asimov

mnc76

I don't understand. How do other phone manufacturers survive without these types of service revenues? Has RIM always been mostly reliant on service revenues? Do we not think RIM can compete on the same playing field as other phone companies?

randall2580

Many aren't. HTC and Motorola are losing money. Samsung has huge economies of scale, make most of their own parts, and as a result probably make more on a sale of a particular phone than most of their competitors.

Apple and Google own their App, Music and Video stores 100% - they do not share their revenues from the stores. In fact Google sells their own hardware at what is expected to be cost, to get folks locked into their ecosystem because that's where they make their money.

RIM has had a unique way of generating revenue and as far as BES is concerned provided a value added service that businesses will pay for.

On the consumer side, the value added in BIS has diminished over time. This has put RIM in a difficult place. In the USA, Verizon and AT&T have gone to shared data plans - every phone connected to the plan connects for a set fee around $30. If the user has an iPhone or an Android phone, the providers keep it all. A BlackBerry with a BlackBerry data plan costs them $5 a month so of the 30, Verizon and AT&T keep $25. That means carriers have incentive to sell you the other 2. RIM is behind a rock and a hard place. If they want the carriers to have incentive to sell their phones with the others, they have to reduce the fee, but reducing the fee means RIM takes in less revenue.

tharrison4815

I think the idea is that BB10 will use the app/music/video store system too.

randall2580

But they will partner with 7Digital, so the proceeds will have to be shared

TomJasper

Service rev's will not disappear or drive RIM off a cliff, stop with the BS Chris. You have been hand wringing about this too often.

http://watch.bnn.ca/#clip831639

I will take Thor at his words before ANY so called analyst. As for the one pissy analyst on the conference call that didn't get HIS answers before Jan 30.2013 screw him.

Chris Umiastowski

Well let's see what others think.  Am I full of BS while the stock tanks out of investor stupidity, or Tom, are you unable to notice that Thor himself said "some" users won't generate a fee for RIM?  

CEOs sugar coat. "some" means "lots"

TomJasper

It's called market manipulation by very deep pockets who use scare tactics. These same SOB's will be grabbing boat loads from weak hands now."what others think", that's laughable, as you and I know the narrative has been set by those with the deep pockets that have their own agenda, much like you have have an agenda for some time to push the sky is falling rev stream from service rev's. Jan.30.2013 can't come soon enough so the hand wringing types get the egg on face they deserve!

"sugar coat" ,that's your opinion of Thor? You two faced #*#*+. Go have the balls and meet with Thor, come back to this thread after and tell us your evaluation of Thor then, I bet you don't have the stones to do it. Go ahead prove me wrong.

BruvvaPete2

The Mayan calendar has come to pass and you're still sprouting nonsense. Holy smokes are you ever a bitter old man. Go smoke a joint in Washington State and chill out. Don't forget your munchies and a 40 of OE from the local 7-11. Merry Christmas.

rim_investor

I think the link you want is http://watch.bnn.ca/#clip831813 which has Thorsten speaking.

rim_investor

The link you want is http://watch.bnn.ca/#clip831813 . Chris, stop drinking so much before you post...mixing up BIS and BES at 80%

rim_investor

Michael Genovese (link below) is saying RIM is a $6 stock because will never generate cash or make a profit again...REALLY?

http://watch.bnn.ca/#clip831814

I think RIM can generate new service revenue...they are NOT standing still.

marlowe9810

One way to monetize BMM is to make it a cross platform service. BBM text messages would be the base service, then Voice and Video would be a premium service. I don't know the impact would be on BB device sales but I think that is one scenario they should consider.

md03wx

Why couldn't they make BBM cross platform and charge a reasonable fee per month (say $2) for non-BB platforms.

marlowe9810

Maybe a pricing model that is similar to this might work:

BBM Devices:

Text Messaging: $0

Premium Voice and Video: $2 per month

Android or IOS:

Text Messaging: $1 per Month

Premium Voice and Video: $2 per month

WillieLee

Who is going to pay $2 a month for a messenger app?

SEAWARRIOR

no one...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

JakeTheCat

Are you kidding? A carrier will gladly pay $2 for a messenger app if they can charge their customers $5 for it.

Hello Blackberry World

It will be built into the carrier billing base data plan and passed onto RIM

ovi08

There is no way they can offer BBM texting (Ie, bbm messaging) as a free service and charge a premium for voice in video because you are forgetting about one crucial thing, the servers. If BBM would be cross platform and you were allowed to message for free, the servers would overload because it would be the most widely used app in any OS. This is why whatsapp and other messaging devices are always seen as inferior.

Rootbrian

NO!

Thorsten said so. Not going to happen.

martinjdub

Better than expected results in my limited view and positioned for BB10 success.

Jtaylor1986

How will it effect results if current subscribers are upgrading to new phone which means RIM will lose this BIS fee as well.

BBNation

The carrier agreements/contracts are done years ago and it will take years before seeing the affect of it. RIM does reliaze that BES and BIS revenue will be reduced in the developing market and less PM in the developing markets so it is looking to replace amonng both and fininding new ways to generate high profit, uniquie way of making money. I guess RIM will still will make on BES/BIS for 2013 as it will keep selling bb7s and it has about year to figure out new strategy. For e.g. my work has more than 400 BBs with full plan with BELL well are locked in 2 years so RIM will be making money of us for atleast year and it will change as we go to bb10. Yes, we are going to BB10 within few months and meeting BELL to figure out next steps..
I am cool with earnings for short term, we will NEVER know how wall street sees things..this is the craziest move I ever seen..up over 10% and down 15% in hour..

14knickers

Legacy customer data plans yes, but Carrier contracts done years ago won't mean a thing now. BB10 will be looked at as a clean slate for many carriers and by the sounds of it they have already negotiated the tiered SAF's.

Having approx 35% of your revenue jeopardized is a big, big deal. Also I'd be concerned about BES10 customer CAL's. Lots of competition now and having a continuous revenue stream, whether it be from SAF's or CAL's, is vital to remain in business.

HabsSuck

Its only 35% because Hardware revenue has declined so significantly.

morganplus8

First of all, the numbers were stellar to say the least. The sell-through of phones was at 8.4 million units and carriers have empty shelves now so they are doing a wonderful job of transitioning the company for BB 10. As for the Enterprise side, this will take many years to play out. The priority is to launch phones now and let the pieces fall into place. The US market for RIM is a virgin market, everyone left for another platform, RIM have the chance to sell a ton of phones for years to come without any other input. I think this problem is grossly exaggerated and needs to be thought out some more before calling it a crisis.

RubberChicken76

"The sell-through of phones was at 8.4 million units "

Interestingly, engadget tried to imply the usual "they shipped but not sold" crap, suggesting that they were just gathering dust on the store shelves. I gave him the 8.4 million number but ... not surprisingly ... they failed to update that 'fact'.

morganplus8

Doesn't that piss you off? We all know that channel stuffing will be huge, in the order of 6 million units when they go live in the Spring. RIM has done an amazing job of selling down inventory and converting cash. There is no doubt that today's numbers were great.

RubberChicken76

To engadget's credit, they updated the story.

PlayBookUserMT

Great write up Chris. I've been following closely and am personally hoping for a little dip in the stock to get in while it's still low. I'm definitely looking forward to a big BB come back in 2013 and hope they have a solid plan for making up new service revenues. I want in low, but can't wait to see the stock sail high once again!

Just one fix, "But with (my estimate of) 80% of their subscribers being on BES plans, " This should say BIS, not BES. You wrote it up correctly in the previous paragraphs then mixed it up there.

darkehawke

nice write up.
i'm not big on finance and how it works, but this article has left me with more of a clue on what is going on with RIM.
These are uncertain times, and it'll be interesting to see how it pans out.
I'll do what i can do best and just continue too support Blackberry and hope enough of us do the same to see them through these times :)

AT_Nepal

Wow, that is BAD news!!!

IMHO, RIM cannot make hardware very profitable. Motorola tried and failed. So will RIMM.

Google as motorola are completely ok with cutting costs to practically 0 just to outdo rivals. The example is already there in software with Android, and now hardware, with Nexus 4. I think GOOG will give RIMM a hard time if it starts to see it as serious competition. On that front alone, RIMM cannot make it for sure.

Rootbrian

THEY ARE going to make it.

JakeTheCat

Motorola was unprofitable and did not have their own operating system to put on their smartphones. That was a significantly weaker position for them to be in than where RIM finds themselves today. Google bought Motorola for $12.5 billion. That is a significantly higher price than where RIM trades today.

SEAWARRIOR

that might explain why it seems they're tying everything, games, music, apps & whatnot, to BBM, they're softening the blow maybe??? personally i have no use for BBM as i'm the only person i know w/ a BB & have heard (read) others say the same,,, if i wanna use it i will but i certainly wouldn't pay for it,,, i already find it intrusive & annoying that i keep getting asked, "do you want to turn on BBM???" which in some fairness is the app developer,,, to me BBM music is another useless feature,,, i don't care what anyone else listens to,,, most ppl don't care what i'm listening to either i'd imagine,,, that to me seems like an attempt @ following Fruitphones' footsteps,,, monetizing BBM would be the deathblow to RIM...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

Rootbrian

It won't be a death blow. Maybe a small add at the bottom of bbm, or the top that blends in? I don't mind that at all really if it showed off apps I didn't have installed that I find interesting to try out.

mathking606

I actually see this as a sort of a positive since it makes them take a realistic take on the market. They could not really expect the carriers to keep paying them when no one else (apple,google,microsoft) are getting paid. This should just give them even more focus to make sure BB10 is a success and from what I've heard it will be. I find it amazing that among my colleagues there is actually a buzz about BB10 even though it has not been formally advertised. As for BBM well you never know since I've heard there is a bunch of things of BB10 that we have not seen such as the rumoured BBM Desktop.

BBThemes

One thing that hasnt been mentioned too much is licensing. If RIM were to license out BB10, would they generate a direct revenue from that license? or alternatively theyd have their BIS revenues at which point they make money that way.

I think thats something that has to be put into the mix, because if RIM can get more BB10 devices onto the marketplace with licensing, then more people will be using the devices and services. would that be enough to compensate? who knows, but it is a way they could at least account for some of the revenue stream loss if it all went that way.

Rootbrian

RIM could license out QNX, not as "bb10", to other manufacturers in order for them to streamline it, hack, dice up and remake it for their own purposes on new smartphones like they do to android (which is butchered up badly on some phones). QNX is amazing.

AT_Nepal

AND WHY WOULD THORSTEN ANNOUNCE THIS NEWS NOW?????!!!!!!

This couldn't be worse timing.

Why not announce it in Q4, when there is already evidence of how successful BB10 will have been so investor realize that, "ok, may be the fee isnt that important since RIM is doing so well in terms of hardware"???

AND WITH NO SPECIFICS!!! Thorsten made a mistake this time.

14knickers

because as of Jan 30th, that's RIM's new reality.

BruvvaPete2

Child, your tantrums will get you a time out pretty soon... And no Game Boy either!

physbb

While obviously a bummer, I'm not terribly perturbed by this service revenue issue. To put it in perspective, $3 a month for 24 months is $72 over a two year period (my estimated phone lifetime). BB10 phone sales will bring in considerably more revenue than the current BB7 phones, so I expect this $72 will be more than compensated by the additional profit per phone. This is just moving to a more conventional revenue model, and presumably RIM will be able to negotiate higher phone prices in exchange for lower service revenues.

In addition, RIM still has their network, which I'm sure they are looking to leverage for additional service revenues in new ways with new partners (M2M, etc.). They couldn't talk about details on the call, but I suspect the "strategic review" has something to do with this.

physbb

I would also like to add that a reduction in service revenue is really a second order effect. The success or failure of BB10 will be the primary driver of RIM's future. *If* BB10 succeeds in the market, *then* it's time to start talking about how much profit RIM will make. Obviously, decreased service revenue would have a negative effect here. But the point I'm trying to make is that the service revenue question has nothing to do with whether or not BB10 is widely adopted in the marketplace.

14knickers

Maybe put it another way - if they didn't have this revenue the past couple of years they would be bankrupt.

therefore with out it, if they falter whatsoever in the future they are done.

zander2652

"Sure, Thorsten said the service revenues "aren't going away". Technically he's right. As long as RIM has an enterprise base, or perhaps a professional consumer base that wants some kind of extra service from RIM, they'll generate some fees. But with (my estimate of) 80% of their subscribers being on BES plans, and so many of those folks being in emerging markets, I think it tells us that the vast majority of RIM's current service revenues will disappear."

Chris, I think you meant to say 80% of their subscribers on BIS plans...not BES...right? Just got confused there for a second while trying to follow your thoughts.

SEAWARRIOR

that was brought up earlier...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

Hello Blackberry World

It's actually 80% BIS. There was a type in the article.

greatwiseone

Frankly, for a company that hasn't really had new products for the past year (other than cheap new Curves) and a complete platform transition, it's pretty remarkable that the financials are generally pretty stable. If you read the article on The Verge on post-mortem of Palm and webOS, you will see that in that situation, Palm basically ran out of money by end of 2009 (the year Palm Pre launched). With the war chest filled up a bit more, hopefully RIM will use it properly to market BB10.

As to the service revenue, RIM knew that that gravy train can't last forever. I think it's smart to go with tiers of services, but they'll need to do it properly. For developed countries like Canada and the U.S., I don't think they'll be able to get away with charging a lot for specific add on services. However, in developing countries, RIM can definitely do something to get some extra money per subscriber. For instance, we saw a leak of BBM Video minutes, and theoretically people can buy these minutes on a monthly basis rather than a flat data fee that North American customers are accustomed to paying.

chindoberry

"But with (my estimate of) 80% of their subscribers being on BES plans..." --> Should be BIS.

SEAWARRIOR

he knows,,, you're the 3rd to mention it...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

zander2652

Thanks for the analysis, Chris. Just a thought, wouldn't the drop in service fees mean that the consumers would have to pay less for their contracts and plus it would mean that bb10 phones can be use over wifi and not be dependent on BIS. If I understand this correctly, when the power outage in the past happened, bb phones were rendered useless because they couldn't be used over wifi.

And if my thinking is correct, one of the possible reason why people might be detered from buying bb phones is because of the extra fees for BIS and also because the phone can't be used apart from BIS.

So now with BB10 not having to be completely dependent to BB data plans, would it be possible that this would make bb10 more attractive for consumers to buy, thus resulting in to higher sales? Plus they can still offer the bb10 data plan as an option for those that want it, and most people would probably choose to get them anyway, so meaning the service revenues would not completely disappear?

I hope I made sense, but I want to see what others think. Thanks.

SEAWARRIOR

i think most carriers already charge a mandatory data fee for all smartphones,,, it's not a separate fee for BB's,,, my data plan is a carrier offered one,,, i believe RIM gets a piece of what they charge if i understood correctly...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

zander2652

thanks for the reply. Im not sure about that though. In canada, when i go to a store to ask about phones and contracts, there's always a $5 add on to the monthly contract if I were to buy a bb7 phone. Plus, I think bb7 phones can't be used over wifi. (I don't own a bb so I could be wrong here)

kw9700

Most plans in Canada (I'm Telus) don't charge extra for "Blackberry fees". The only time you'll see a blackberry data charge is if you didn't get a data plan at all, and opted for the blackberry basics that require data (lucky the carriers even do this at all). So if you're seeing a blackberry fee, it's because that's a low-cost alternative to a conventional data plan. A regular data plan provides data for anything you do, so you wouldn't need, or get charged, the blackberry services fee (or whatever that particular carrier calls it).

Also, all Blackberry 7 phones can be used over wifi, and by default send data over wifi when they are connected to a wifi network.

feldmen01

When you get a data plan with a blackberry in Canada, you get a blackberry data plan, unlike a regular data plan, this one comes with service fees built into the plan itself, even if you never see them.

randall2580

For Verizon and AT&T in the USA - the 2 majors - they are moving people to shared data plans. You buy a bucket of data and then link phones to it. All smartphones connect for $30, doesn't matter the brand. So iPhone and Android give those 2 $30 a month. BlackBerry takes $5 out of the $30 so in principal - a BlackBerry the way things are now, make less money for the 2 USA majors then their competitors. RIM cannot afford to disincentivize the carriers.

cjcampbell

Yes, that's true, but the amount of data used by a BB is less therefore it costs the carrier less. It pretty much washes

HollyWOOD1906

+1 I just learned that yesterday

randall2580

Disagree, they want you to use data, not conserve it - it's another way they make money. Plus I think if BIS is going to be "optional" - the compression won't be there.

JakeTheCat

"It's another way they make money"... IF they can provide the data at a lower marginal cost than the fees they charge. For some carriers it is worth it to pay RIM. AT&T had so many complaints with the iPhone they actually made a specific app so users could report data failures on their iPhone. Considering how many people took the time to give that app a rating in iTunes you have to know that app was used by a lot of people.

Slightly off topic, but has anyone heard if that app will be available on BB10 at launch? ;)

kw9700

Substance vs. form. Label it what you want. The plans don't differ for a blackberry vs. non-blackberry. You won't pay more for that same data plan just because you're using a blackberry. The carrier eats those BIS fees.

SEAWARRIOR

does that fee also apply to other "smart phones"??? & it depends on the carrier as to whether you can make wifi calls w/ a BB,,, for an additional fee, (on top of data fees), some BB phones have an internal "hotspot" feature that can be enabled but can also access wifi via "open" hotspots or via one you have access to thru a friend & calls can be made thru these for no cost @ least in my area (northeast U.S.)...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

Jake Storm

Yeah, you're wrong. BB phones can be used over wifi.
And you can get the same plans for BB phones as any other phone, no extra charge. (Telus)

EchuOkan1

First of all, thank you for your review, Chris. It is very complete and we'll thought out. I enjoyed reading it.

Now, to your closing quest ion. I think they will be able to come out with a plan to attack this crisis in due time. We have seen how Mr. T has surrounded himself with a top notch team and has proven to be a great leader in such a short time. He has made tough decisions and stuck to his guns and, so far, it has paid off.

zander2652

oops sorry. double posted.

np1986

Unfortunately, I don't see how the current model would be sustainable in an increasingly BYOD world. Like Thorsten said, many segments of the market simply don't need it and thus they have no reason to transition to BES10. At least an a la carte option would be more compelling for them. While the service revenue is at risk, it's more important that RIM is able to maximize BB10 adoption.

T-Raww

Hello no I wouldn't pay for minutes if the us isn't and would you say that the virgin Islands is an emerging market even though we use us currency and their servers for everything even though it's still in the caribbean and I wanna know because here were like the part of the caribbean that's more developed there aren the British and us virgin Islands but we do have 4G and such and other caribbean countries doesn't have it as yet I thing

BBNation

The service revenue will increase per RIM ceo on BNN, bb10 will more services and bb7 will continue to bring the current revenue

JakeTheCat

+1

BB7 will continue to be supported, BB10 will have more services, there will be a transition period. His response on the topic was so clear that it didn't warrant a follow up question from the interviewer.

HabsSuck

Chris,
Look for increase service revenue from their MDM service BES 10 with Mobile Fusion handling BB, iOS and Android but more importantly they have to sell more hardware in the long run.

Service revenue :
2012 - $4.1M EPS - 2.2
2011 - $3.2M EPS 6.4
2010. - $2.4M EPS - 4.3
2009 - $1.6M EPS - 3.3
2008 - $1.1M EPS - 2.3

a1s2d3f4g5

Man I'm not sure what to think about this one.

The service revenues - I wish I knew more about how these work and what's going to happen to them. From my understanding a chunk of them are actually paid by the end user rather than the carriers. So blackberry customers in Indonesia, Nigeria, India, etc. pay to be able to use BIS and BBM. I can't see that going to zero, because why would it? The carriers shouldn't care too much about that because it's directly billed to the customer.

Now RIM has 80M subscribers and generates a little over $1b in service revenue. Some of that is repairs and tech plans. So they get about $12.50 of service revenue per user per quarter. BIS probably averages $10 per quarter. Bringing 75% of all their users from $10 per quarter to $0 is going to be a huge obstacle for RIM to overcome. But I don't understand why this revenue source would completely dry up. For example, push email and BBM are two services that RIM offers that consumers would pay extra for. If RIM could charge a fee for those services, it can still get a little money out of the majority of its users. If someone could explain more about how BIS works from a financial perspective that would be really helpful. As you can tell I am struggling with this one as well I think Wall Street is, too. When Wall Street doesn't have information it tends to sell.

My gut tells me the market is overreacting here, and RIM will continue to generate service revenue but just reduced by 20-30% per user. But I just don't know enough about it.

Other than the service issue it was actually a good quarter for RIM. I was hoping for closer to 9m sell-through but that's ok. I think next Q will be tough because a lot of people are waiting for BB10. The cash is great news because RIM can really put some money into marketing to compete with Apple and Samsung.

The biggest positive takeaway for me was the 255k playbook sales. No analyst is giving the PB any value to RIM but there are now close to 3M playbook owners. Once 4G PB is released with BB10 Blackberry may start making some money on its tablets.

a1s2d3f4g5

I wish I knew more about the specifics of how BIS and service revenue works. My gut tells me the market is overreacting to this but I don't know enough about it to say for certain.

My understanding is that a lot of times the consumer is billed directly for the RIM services such as push email and BBM. Consumers are willing to pay this for the phones separate from carriers so I don't see this revenue source completely drying up. I am a little unsure of how carriers come into play in the equation though.

A complete evaporation of service revenues would be a very hard thing for RIM to overcome. But I think that is unlikely to happen. It seems more likely that the numbers will scale back a little.

Does anyone know more about service revenues and how they are earned by RIM?

SEAWARRIOR

this is not true @ all!!! there are no push/bbm fees!!! RIM gets its money from the carriers, not the consumer, as a % of data plan fees charged by them (the carrier),,, wow,,, no wonder no one wants a BB,,, everyone thinks they gotta pay a bunch of extra fees to use them,,, who started that rumor, BGR???

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

a1s2d3f4g5

jeeze chill out man. I said I don't know a lot about it. That's why I asked someone to explain it to me.

Also I'm pretty sure BB does charge users for BIS in emerging markets. Just search Google for does the Blackberry service plan cost more than regular plan. I found a bunch of people who posted saying BB plans cost more. But maybe they are wrong.

SEAWARRIOR

no sweat bro,,, i'm chill,,, the exclamation was just so ppl take notice, that's all,,, & those bunch of ppl are wrong,,, BB plans don't cost more,,, where did they post that???

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

a1s2d3f4g5

Ok thanks. I saw it posted on message boards when I searched on google for the cost of a BIS plan. But maybe they were comparing Blackberry to feature phones instead of other smartphones.

Marc_Paradise

Take a breath, man. It's no rumor, it's the absolute truth.

THe specifics vary by carrier. I know that I need to get special "BlackBerry Data Plans" for my device on AT&T - and they carry a $10 premium over what I'd pay for an Android or iPhone data plan.

TMobile charges a specific BlackBerry fee atop their data plan fee.

I'm sure other carriers hide it from the consumer.

SEAWARRIOR

wow,,, that's just criminal...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

bb10_fan

Same here in Europe, BB service costs extra 5 - 8 euro per month (depends on carrier) :)

sf49ers

what are you talking? are you using an enterprise plan? ATT charges $10-$25 extra on most enterprise plan irrespective of the vendor

randall2580

On the shared data plan on ATT my BlackBerry costs $30 and my Galaxy Note costs $30. ATT makes all $30 on the Android, but have to pay the BIS fees from the $30 for the 9810. So, ATT actually has a financial incentive to steer their users to Android and iPhone - the get all $30

BlackberryFan777

I saw RIM's willingness to give in to carriers on the service fee issue as an indicator that RIM will be selling its BES / BIS network infrastructure sometime in 2013. BB10 BBM is no longer dependent on the network. BB10 email uses activesync and other technologies not necessarily dependent on the network. RIM knows better than anyone that the trend towards BYOD makes BES not potential cash cow that it used to be.

I'm not betting on it, of course, but I think there's still some likelihood that we will see a major transaction involving RIM, in which the new RIM is centered around the development of the new platform, including the potential for shedding hardware altogether and focusing on licensing BB10. Service fees, hardware, and BES are sort of the Blackberry we remember, but we've seen little momentum in these areas for a year or more. It's all been BB10, which has been purposely designed not to require the older BB infrastructure.

Let me also point out that this news about consumer choice in access to the network in some ways makes Jim Basillle look like a genius. If the service fees aren't necessarily bundled with every BB as a brand differntiator, why not open the network up to Android and/or iOS users?

ADGrant

Who would want to buy the BES/BIS infrastructure. BIS will almost disappear from the NA & Europe market in the next year or so and I doubt we will see much BES revenue growth to compensate.

a1s2d3f4g5

Watching Heins' interview on BNN, he says that RIM will continue to generate service revenues from consumer and enterprise users in BB10. So I do not think consumer service revenues will go to $0. The question is will they drop and how much?

Another factor will be the churn rate - it looks like BB7 is losing about 9M subscribers per quarter and gaining 8M. With BB10 the difference should go up, losing maybe 12M per quarter, gaining 4-5M on the BB10 side and 5-6M on the BB7 side. If there is a big different in service revenues between BB7 and BB10 then the churn rate will be something to keep an eye on. But again we don't have all of the information and common sense makes me doubt that these revenues are going to drop all the way to $0 on the new BB10 platform.

SEAWARRIOR

i don't think they could leave the hardware market completely,,, too many ppl are loyal to the hardware AND software,,, the smart move would be to streamline the hardware offerings, (how many devices are there??? 10+/-???) & license the software as ***cough*** google***cough*** has & done well @ it...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

dannyd86

They should make bbm cross platform. And do it at launch. Something to get every bodies attention all at once. Blackberry users are excited, iphone/android users are watching and get involved at the same time. Over night blackberry is now on every bodies mind.

The old argument that people aren't going to buy blackberries if they can get bbm on an iphone isn't valid. We now have BB10, the phones themselves are the selling point. BBM is a feature they should use to the full extent they can.

Not to mention that would be your solution to skype, a good F-U to microsoft right on launch day.

SEAWARRIOR

the 1st thing they have to do is show why BBM is even necessary to have & what the differences are between that & other messaging platforms...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

BruvvaPete2

I used BBM voice for the first time. Excuse the expletive, but I'm so f'n impressed it's not funny. It was better than a regular phone call. I would encourage everyone to download and use it; being backward compatible is such a huge deal... Something that Apple can't mimic. Now RIM needs to figure out how to get it cross platform (except for Apple).

theMonkeysUncle

RIM is right to make this move, and it will lead to long-term benefits. The end goal here needs to be to sell the devices, because without device market share, there is no way to get customers to pay for ANY services, whether they be BIS, BBM Money, or whatever else. RIM is competing against a half dozen companies that all offer similar phones that are fully functional on the network, but a Blackberry is the only one that will cost $5 more to the customer every single month. For the cost-conscious consumer, that is a real deterrent, especially in the third world (but also in the first world). The traders on Wall Street are myopic... they don't understand that lower (or eliminated) monthly fees will simply allow the Blackberry to be more competitive.

One thing I think RIM is missing out on: there is now a huge market for a cross-platform messenger. WhatsApp is expanding like crazy, and it's free now, but have you noticed that it is a "free trial"? WhatsApp WILL begin to charge a monthly fee in the future, and this is for an app with serious performance and security holes, and an untested record for reliability. If BBM came out on all platforms with a smart fee structure (see above comments) for a fast, highly secure service, there's no question it would go far .

BruvvaPete2

Although WhatsApp is widely accepted, it shows just how uninformed (or uncaring) people are with regard to the huge security issues surrounding the app (generally people say I'm not affected so it doesn't matter). A cross platform BBM app would be such a beast :). Apple won't allow BBM to be available to its users. They've burned so many bridges it's not funny. I wonder how the Google Maps egg on Apple's face is tasting

pick1eberry

People have short memories. You'll be surprised at how many people/companies go PREMIUM.

nabil114

I think they need to cut their operating expenses by the one billion dollars. If you compare it to the HTC it is still high. The need for improving revenues is important.

BIS depends on the sales of the devices.

- Rezaur Rahman

Jimcmf

We are going the full package.
I can't believe that RIM sold 8.4 Million older Phones. That's pretty good.

I'm sure that some shorts kicked in yesterday.
It will be interesting to see tomorrow where the stock ends up.

timmy t

I think they are still going to get people to use BIS because they force people to use it to get email or use BBM.
Also, they can make up for lost revenue per customer by doubling and tripling their customer base.
Doesn't seem that far fetched to me.

m0de25

Total noob comment/question, I'm sure (look it's my first post!)

I think others have touched on this, but in getting these new high performance, app heavy BB10 to millions of people, won't the fee loss be offset by the growing amount of app buyers in Appworld anyway?

I know apps existed on previous generation phones, but nowhere near the quantites and qualities it available now and this will only grow... I myself have spent hundreds of dollars on the growing PlayBook apps as they came in from the first drought up until recently.

And basically, the app store is why Google is able to basically give away their phones. So, between higher margin hardware and quality apps, aren't we basically worried for nothing?

pick1eberry

+1

And (which was mentioned earlier) what if you doubled or tripled your user base?

m0de25

Exactly... RIM is just switching over to where the world shifted to with Apple and Android. HUGE user base dumping money into apps... VS the old model that was suffocating RIM which was: ever decreasing user base (ie. Business base) paying service fees.

Why are we surprised about this strategy? I thought we were all excited that RIM finally turned the tide on their past with user friendly BB10?

southlander

Error:

"But with (my estimate of) 80% of their subscribers being on BES plans,..."

Should read BIS not BES.

Tkarps

I don't know enough about how the services work but with my limited knowledge I don't see a problem. One can assume that they will hold onto some of the companies using BES and they will upgrade to the new BES.

Carriers are always looking for more bandwidth so what does it matter if BB10 is now using active sync. Taking advantage of the current RIM infrastructure can only be a good thing for carriers.

There has to be a way to monetize BBM voice / video / money ...

At the end of the day all the smart phone companies are in the same boat. Apple does 80% of their revenue on the iphone. Although it is a fantastic device it too is under pressure and will be losing ground to all the other phones coming out. 80% is a massive amount.

Even the all mighty Google / Android will face pressure from phone manufacturers developing their own OS.

This is technology. If I were RIM I would be looking into more of the machine 2 machine stuff they have been talking about for more revenue. Having a worldwide network puts them in a unique position with manufacturers. I know that hospitals could use RIM's secure network to share information. They are very inefficient at the moment. Many ways to make money they just have to think out of the box.

Tim

alta.guy

you know what, I don't care if Rim is 3rd or 4th, as long as they stay in business and provide me with a blackberry I'm ok with that. Surely even 4th in a well run company can exsist. My company only has revenue of 4 million per year and it stays in business.

SEAWARRIOR

i'm w/ the 3rd (or 4th depending what, when & where you read it) largest carrier & they provide me w/ the best service @ THE best price,,, good is good & if you keep it that way ppl will be there,,, my company only has a revenue of 50k-100k annually & it does just fine 'cuz it has no overhead...

"THE GUY YOUR MOTHER WARNED YOU ABOUT"

Hello Blackberry World

80000000 Users
64000000 BIS 256000000 ($4 fee)
16000000 BES 112000000 ($7 fee)
$368,000,000.00 Revenue

One of these numbers is wrong as 80% BIS and 20% BES does not add up

a1s2d3f4g5

That is monthly, but revenue is quarterly.

BIS is closer to $3

BB10Funding

Wooo wooo wooo HOLD THE PHONE!!! Slow down a minute here everyone. I know exactly what Mr T was talking about with BB tier plans.

Most of you automatically think BBM would be the first target. In Europe we pay a fee for BB , this includes email service BBM etc and 500mb of data for about 10 euros. We must also choose a mobile package. If we don't want BB we shut it off or choose another data plan but the service isn't live.

Now lets look at where BB is growing ...Asia etc...this is a Pay as You Go culture. Also something I want to ask all of you. Imagine for 3 dollars a month you can buy an out of the box sim card and pop it into maybe one of your old BB's and use it while you travel. For BBM or even a travel email.

This way you wouldn't be using your data roaming package from home with your other phone...I hope I am not losing everyone here. As a world traveller I always use internet data but shut mine off when I travel.
So having a pay as you go option works great.

Please Crackberry don't block the link I am posting here....

Maybe this link will show you how RIm is collecting in other markets...This is one of Thailands

bigger carriers and people love BB in Thailand. Have a look at the choices.

http://www.dtac.co.th/en/prepaid/products/happyblackberry.html

Rub3n5

Thorsten was interviewed by BNN not long after the earnings call.

http://bit.ly/Tb36Pj

Rub3n5

No prob. I think Thorsten did a bit of a better job in this interview than in the conference call.

Jimcmf

Yeah thanks.
He had a bit of time to think of the correct answer. He didn't want to say something that he wasn't sure of.
I saw a bit more of the HB10 in action on ctv news. Wow. There are some never before seen amazing things that you can do with this phone. I love the keyboard, but I may go with the touch this time around.

Rub3n5

The HB10? I'm curious, what was it that you saw? I tried to find it on their site but couldn't see anything.

lorax1284

BlackBerry stands to increase revenues from App World just as Google and Apple have. Those two platforms are running out of steam quickly. And I honestly believe it's only a matter of time before Android device vendors figure out "why are we busting our humps and losing money year after year to make GOOGLE richer?" and look for other options.

The BB10 platform will enable software and mobile experiences that a) can't be matched by Android and Apple and b) will be able to carry a price premium because of it.

I would be a lot more confident accessing my home network from a mobile device, for example, if I could have a RIM-brand firewall that talks to my BB10 handheld and lets me in without a lot of configuration beyond "enter the PIN of the router" and its presence on the internet is all that's required... as opposed to me having to have a static IP or use DynDNS or something.

Someone mentioned Outside the box thinking? Well, there are a lot more opportunities outside ANY box than in it, and RIM's got that fancy network on which lots of boxes can be stacked.

RubberChicken76

Great article Chris.

Not sure why people are surprised about the Service Tier issue. Chris has been flagging it for a while.

I imagine that now that BB10 is heading to market, it's the immediate next thing on Thorsten's list.

Probably a lot of late nights and presentations to prepare on this in RIM's teams.

Rub3n5

What surprised me is how quickly that form of revenue is disappearing for them. I figured it was a ways out but with Thorsten already talking about the tiered approach, it means that RIM is not going to have that revenue at a time when they need it the most. It puts even more pressure on BB10 and pretty much bankrupts this company in less than 2 years if it's a flop.

G-bone

So, maybe it has all been said before,
But...
Here are my thoughts :
For the last year and a half, all I, and we, have been hearing is , "RIM is dead. They're toast. Stick a fork in their ass and turn 'em over ; they're done. ".
Then, we heard, " They are / they gotta be / they soon will be / , hemmorhaging cash! They'll never make it to BB 10 launch! The fuse is going to burn out before the rocket can launch! "
Hell, even Umi figgered they'd be burning fat stacks by now. And Umi is optimistic on RIM!
So, my brothers in arms, and those who dropped by in hopes of finding an accident to gawp at,
What happened?
RIM has added very close to 1 BILLION DOLLARS to their cash pile.
My feeling is this : Thorsten Heins is a very smart man. Smarter than anyone gave him credit for. Maybe even smarter than we had hoped (and we have had very high hopes, indeed. Very few could ever hope to out-hope us!).
He has surrounded himself with very smart men and women. He has made great changes. He is not done yet.
fahrvergnügen may be what makes a Volkswagen a Volkswagen, but it is also what makes the Germans good at business and innovation.
I think Thor is probably way ahead of us on this one. He has been so far.
If anyone can find new revenue streams, well, he's our diviner.

Rub3n5

On the positive, agreed... this new leadership group is executing (from what we can tell, almost perfectly) on every level. HUGE positive and hate to say it, but if Jim and Mike were still around, we might be putting nails in the coffin today.

On the downside, they MUST find another revenue stream. And that's the part that makes me really nervous today over yesterday. Then again, I'm certainly not as smart as these guys. Thorsten may in fact, be the CEO of the year if he pulls this company from the potential ashes and finds these revenue streams.

cjcampbell

I read the majority of the comments and didn't see this so if it's a repost, sorry......Also, this is a cut and past from my comment in the forums.......

Well since he was asked outright, he didn't have much of a choice to say what was going to happen. There is an obligation to shareholders to disclose things like that. You are right, that they have a lot of work to do to explain, in detail, their plans for this tiered move.

I, for one, will pay the extra (not really) $5/mth to go through BIS and NOC in order to save on data consumption and have that added level of security. It may not be important but I just like having it there. Call me paranoid but hey, we all have our idiosyncrasies. The reason I say "not really" in parenthesis, is because I have 500mb per month data. I have never, ever, come close to using it. The majority of my data use is via email, and messaging, and yes, it is a lot. Yes, I watch the odd utube vid and stream some music and surf the web, but because of this set up, I don't need any more. Hel* I have more data than I need. For those who want iPhone and Android structured plans due to high media consumption, fair enough, RIM has answered and said here you go.

I think this way is a good move. Especially reading sooooo many posts about anti BIS sentiment.... the cost that comes with it. Well, can't complain anymore (not sure if this last point holds water but it seems like a logical assumption based one what was announced).

SK122387

So would now be a good time to sign up for BBM Music and start paying $4.99 a month to RIM?

DuexNoir

Hmm, this looks to be quite worrisome. I hope RIM Execs will manage to find a solution to this. I need to have BB for many more years to come, don't want them producing an awesome product and then keel over (relatively) shortly after. That's such a waste of a good brand.

~I am BlackBerry by choice~

adam_all

Yeah. Seems in-step with the strategy RIM has taken with the BB10 campaign in North America. There has been such a huge push for carrier support, it's just another reason for carriers to advertise blackberry. Without having to give RIM a portion of the subscriber fee, carriers would be more apt to showcase BB10.

Revenue would obviously have to be drawn from the app store, unique services that other platforms cannot deliver, and, lastly (and leastly) premiums on hardware. I think the ace up the sleeve is unique services. As technology grows at a lightning pace, QNX is the only mobile OS that can support revolutionary leaps that occur in the PC world.

And that's were smartphones are heading. Essentially, pocket PC's that are also phones.

Jimcmf

Rim has 3 billion in cash. That is close to $6 per share. And another $1.50 per share in current inventory.
Do the shorts still think that this stock will fall down to $8 per share on the heels of an awesome product coming out?

thecsman

I thought BlackBerry 10 would still go through the revamped NOC, this time without service charges. Where is the layer of security we kind of have in BIS going?

br14

The fears of service revenues receding are premature.

RIM is offering a menu of services. They could well sell more services as a result!

The typical enterprise has a core set of management users that need full service BES. But many other employees (the BYOD group) just don't need that level of security. They'll get the freedom to use their own phones (which could be BB10) and RIM will no doubt sell some services - like Enterprise App Stores for example. The possibilities are endless.

And the fears about service revenue discount the fact RIM is quite likely to gain deeper penetration into enterprise than it already has, now they have a product that is more than capable of matching the competition (and then some).

Of course in recent years service revenue as a percentage of total revenue has increased in importance, but that's more to do with ASP than any growth in the service business. It's not an issue.

Even if service revenue was to disappear chances are BB10 sales will cover the loss and then some. And if they don't service revenue will be the least of RIM's problems (but they will).

Willdroid1

I believe in the conference call Heins said they were hoping to grow service revenue. All I've heard about so far is that they are giving the consumer options. Perhaps there will be the zero nothing option. Do you really think most people in N.America and Europe are going to opt for the zero nothing option? Really? I don't think so. The zero option is likely there for emerging markets or pay as you go markets. Most who can afford a BB10 can likely afford the basic services at a low fee.

As for growing service revenue - I know when the time comes to pay for my coffee with my phone it won't be an Android because I currently own one and know how easy it is to compromise. Try rooting a BB10. And it won't be Apple because they missed the boat with NFC. There is also the problem of Apple continuously being hacked, as in Jailbroken (much like rooting an Android).

BB doesn't have these problems and the carriers and the banks like this - alot. Security my friends will be the source of that growing service revenue. Mark my words.

BBnose1

It must be the worst sale of BlackBerry phone at the moment, most people would not buy new BlackBerry phone right now because BlackBerry 10 will launch just a month later. I am positive with Rim, I have a feeling that many people including previous users of BlackBerry will come back, will holding the new big screen BlackBerry 10 L on the street.

Superfly_FR

[as I write this, stock is back at $13.07 on NASDAQ pre-market]

@Chris
Thanks for this insightful comments.

I'm a little balanced here and confused with numbers.
But my thoughts are the following :

1/ RIM is on a "back to top" move. Not "survive". This means that if they succeed - say - take about 15-20% of the consumers market with profitable devices, this will likely fill the revenue hole. Also, and I've not read about it yet, we have to consider the frequency of devices renewal. I believe current frequency is far lower (I mean users keep they BB longer than other brands), for three reasons : The quality of the devices (that can last longer), the lack of real innovation and - as a result - the very common "I hold two devices" situation, where having the latest BB device is nowhere useful. With the offering of new, appealing and up to date devices, a shorter renew period is very likely to append.

2/ Users will decide whether or not they want to rely on BIS for "extra services". My hope is that BBM will be the first (and maybe apart) stack of theses. In that case, emerging countries will not be the last to buy this stack ... better the first. Adding the -rumored- video feature will enforce that both for emerging and mature countries.

3/ The development of BB10 and middle end (BIS) for con/prosumers also has a cost (and I believe a massive one). We might have to consider that in their strategy, with a rapid growth (in my scenario above 3X to 5X, depending on areas), the specialization of the NOC (services cut in stacks, BBM being #1) will lower hardware/network investments costs, so that the - real - balance may not be that much than 1billon if we include this "no need to invest" point.

4/ We don't know yet about future services attached to BB10. At the presentation we has in Paris two days ago, I've been asking about the cloud. "Cant comment on this, but look at the screen"; on the screen: Box + DropBox icons. me: "will there be more ?" the speaker : can't comment on this" ... with a smile and shining eyes. How would they monetize this ? I don't know. but I believe they won't offer it for free.

5/ I use for several months now the MS Office365 cloud solution (with - free - BB Enterprises Cloud Services, meaning free BES-like services) but I can't believe MS is not contributing to this, on a CAL basis. There also, RIM had no clear communication and I believe we'll hear about it the 30th.

You know I'm enthusiastic - and somehow over-optimistic - about RIM's future, so I may paint it all pink or sugarcoat it too much. But I can't believe they have not focused on the services revenue point, while they knew a long time ago they have to deal with it.
As a conclusion, I tend to believe that Thorsten has voluntary not unveiled very important parts of the plan, as current stock valuation is not their problem right now (means almost nothing until BB10 launch, good or bad) and that we'll ear about it the 30th.

In the meantime, should the stock go bellow my avg $10.5, I'll buy as much as my free and available cash can (never more than 15% of my available cash - this is not an advice to anyone, just what I'm going to do - I'm not an expert, etc.).

P.S: I know it's not in your habits to comment in forums, but I'll copy/paste this in the "I support RIM and I buy Shares" news and rumors thread. May be more comfortable to discuss about it.

Vector-SS

I would think selling a new device will be a massive "make up" to the shrinking service revenue. If the device is successful and users buy apps, music, etc then I don't see a problem with this. Profit from hardware and profit from BlackBerry World + shrinking service revenue profit, and I'm sure this will generate more money than the current service revenue. Of course my reasoning is based on my opinion that RIM will recapture a good amount of market share with the release of the Z10.

jkrist

So the 80 million subscribers myth has been shattered. What now? 79 million myth.

blackberryto

Alot of good comments already made. I will only add that I think in the developed markets where they probably will lose most of these service revenues in the short term, I think it was part of the negotiation to get them to place big orders for BB10 phones. So I think they basically traded lower service fees for big inventory stocking and probably guarantee from carriers that they will push BB10 hard much like they did for Android initially. If this is in fact what has happened, I think it was the right trade, and this hand-wringing is overblown.

--TommesJay--

That truly -might- be scary. So RIM needs to replace service fees with hardware margins now. With HIGH hardware margins generated with their high end flagship phones. In other words, they'll have to make a comeback in the premium sector in developed markets, where people mostly think that every BB, even the upcoming 10, is outdated crap. Merry X-Mas, damnit.

I hope the launch of BB10 will turn things around.

yeohda

Here in Singapore I pay at least S$9(US$7-8) for my BlackBerry data on top of my normal data plan for about 12GB of data in total. I know a lot of people who get turned off from BB with the knowledge that they would have to pay an extra $9 for 21months than if they got an iPhone or Android. I don't know what they're margins on hardware are but there will be a subsidy for lost service revenue with the margins from the uptick of new users

Boenschi

I'm really tired of this panic "what happens" forecasts everytime.

It's like, as if you wanted to know now what kind of weather we have next spring

How often the "experts" went wrong (remember, Apple was also standing at the abyss in former times).

It´s all stupid talking !

So keep calm and wait!

If the OS 10 devices working fine and the wealthy crowds think they´re hip, then they will buy these smartphones.

And if the "idols" runnig with the os-10-devices, then the mass is feeling the need to own them too - no matter the costs.

Take a look to IOS phones and tablets - Apple is able to demand astronomical prices but the people doesn´t matter.

I trust that Torsten Heins does a good job.

Everything else: let's wait and see

We are human beings and not panicked chickens!

Shanerredflag

Service fees per NFC transaction....security is worth the fee. This would dwarf any current revenues.

Arthur108

This the first time in the History of Blackberry that they lose subscribers. Not a good sign ! :(

scalemaster34

"They're rolling out BlackBerry 10 very soon, and people are already placing pre-orders. The average selling price (ASP) of these devices will be much higher than BlackBerry 7. RIM should be back to making money gain on hardware."

There is making a profit when you sell a device, and there is having a product that people are WILLING to pay a premium for. There will be a number of people buy BB10 on pre-order and in the first few weeks of sales... but I'm not sure that a "higher than BlackBerry 7" priced device is going to be attractive to anyone but the hardcore BB Fans.

I taught the PlayBook was suppose to teach them something....

paul435smith

Surely BB owners are happy to pay fees to have secure texting and e-mails? We know everything we do is encrypted. Unlike Android that is open to viruses. So fees are not going to dry up.

Early morning trading on Nasdaq - RIMM down $2.26... Yikes!!!

hkkelvinlee

Doom and Gloom, so the Mayans said.

I just bought some more RIM stocks today.

Action starts here....

theMonkeysUncle

I bought TSE:RIM at 11.66 (down 16.4% from open). Lets see if it goes down much further - currently RIMM is hovering around -17.5%.

thecsman

We demand a statement from RIM. The stock price is tanking due to this announcement.

greyw0lf01

The issue RIMM is facing now with this future loss of revenue from BES/BIS is that they can’t immediately make up that revenue w/ hardware sales of Z10. RIMM has a ton of users, 79mm as of the latest financials. That’s a huge number to use as a springboard for launching a new product... but the problems become glaring with that thinking:

North America is where RIMM experienced a loss of users (stable/growing elsewhere). Canada fell 23% yoy and the US fell 45% yoy.

If the idea is premised on selling a high margin phone to replace lost revenue then we have to ask the question, which markets ex. N.A. can support the purchase price for a high end smart phone? Are these the same markets where Apple and Samsung peddle their products? If so, then I think it’ll take a while (couple quarters) before Z10 can ramp up to offset losses (while still losing money). But how many of those global users can afford a new flagship phone (in places where annual earnings are low (from a relative standpoint to western standards))? If RIMM was able to sell 8.4mm devices, then it shows an obvious demand for cheaper/free devices.

The other issue is Apple and Android devices have been out for a couple of cycles now, so a current blackberry user wants to trade up to a touch screen smartphone, the value proposition comes into play... buy yesterdays Iphone 4s/Galaxy II cheaply or a brand spanking new Z10 for a lot more.

In N.A. the argument is tough. The ~1mm loss of customers presumably went in another direction which means they are at least a year out from coming back (contract). The other issue is the holiday season. Even with a new device being launched at the end of Jan 2013, the holiday season where sales could have been great is missed.

The other that I haven’t seen mentioned on this site or elsewhere is, what if people don’t like the new OS. It looks great, but people don’t always like change. Take Windows 7 vs. Windows 8. When it rolled out, some people loved it or hated it. In windows case, if you didn’t want to upgrade you could stay w/ Win 7 or even XP. As a blackberry users, if I don’t like the new OS, what other alternative do I have to stay in the RIMM ecosystem if I want a touch screen smartphone?

Additionally, whatever great new features RIMM has in store, how long before Google copies it. Take any of the popular Iphone apps/features and within 3 months, Android phones had it as well. Their ability to clone good features, just for the heck of it, is impressive. Can RIMM continue to improve ahead of a company like Google?

Anecdotally, I popped into a few At&t and Verizon stores casually to ask about new phones. The first question I was asked in every example was, which phone do you have now. If I said Apple, then I was directed to the iphone 5. If I said Android, then I was shown the Galaxy SII/ Note II.

If I said I had a flip phone, it was all Apple/Samsung... nothing else mattered (this also coincided w/ the devices the sales associates personally owned)... all those WP8 were just sitting there. There were no Blackberries in sight. In the Verizon stores, the device used to book people in were Ipads...

This morning as I’m listening to Bloomberg and CNBC dissect RIMM’s earnings; all the commentators and guest say it looks like an iphone at a quick glance.

So as RIMM mounts its comeback, I wonder how it’ll change the minds of people who already left. Maybe they should abandon N.A. (and the fat margins) and focus on those regions where growth is still robust or stable.

ron4540

Rollercoaster ride indeed for the stock.

However, perhaps CrackBerry should be about the products and the users, and maybe we should skip this will the stock go up or down thing.

felberry83

Thanks a lot Chris, everything written in this post just warmed up my faith in RIM and Blackberry. I mean Thorsten is like a Chess player, he can see "10" steps forward before even the game begins. What He is doing since he took the command of Research In Motion,the so called "sinking boat", most of his decisions have always been "apocalyptic" at first sight but then...nothing bad happened. Analysts can tell you how tougher is their job since Thor is CEO... When I look back to his first interviews, his first keynote, I understand now some of his decisions that seemed blurry. Who thought that RIM would be there after iOS6, WP8 and the Galaxy S3? His decisions and project are difficult to understand yes (his secretive side helps a lot there) but if there's a CEO in the mobile computing world who knows exactly what have to be done today for Blackberry, it's Heins! Just one month left to BB10... And what will happen from the Jan 30 will be just amazing... I can't explain it with words or numbers or accounting, but this man... Is just amazing.

"I'm bleeding black and Berry cause I am Blackberry by Choice from the tribe of Black Sheeps!"

Rootbrian

Quite a number of bumrubbing trolls commenting, throwing negativity all over the place. But a majority of them get owned and called out.

I'm also surprised at the earnings and a few losses. I'm estimating their subscriber loss is 500,000, since they rounded it. 79.5 million isn't bad at all anyways. That could have accounted for stolen or lost devices too, defrauded consumors who fall for phishing scams. But that's for another blog.

They earned more, that's good. I see rim succeeding in the future.

a1s2d3f4g5

Man I'm not sure what to think about this one.

The service revenues - I wish I knew more about how these work and what's going to happen to them. From my understanding a chunk of them are actually paid by the end user rather than the carriers. So blackberry customers in Indonesia, Nigeria, India, etc. pay to be able to use BIS and BBM. I can't see that going to zero, because why would it? The carriers shouldn't care too much about that because it's directly billed to the customer.

Now RIM has 80M subscribers and generates a little over $1b in service revenue. Some of that is repairs and tech plans. So they get about $12.50 of service revenue per user per quarter. BIS probably averages $10 per quarter. Bringing 75% of all their users from $10 per quarter to $0 is going to be a huge obstacle for RIM to overcome. But I don't understand why this revenue source would completely dry up. For example, push email and BBM are two services that RIM offers that consumers would pay extra for. If RIM could charge a fee for those services, it can still get a little money out of the majority of its users. If someone could explain more about how BIS works from a financial perspective that would be really helpful. As you can tell I am struggling with this one as well I think Wall Street is, too. When Wall Street doesn't have information it tends to sell.

My gut tells me the market is overreacting here, and RIM will continue to generate service revenue but just reduced by 20-30% per user. But I just don't know enough about it.

Other than the service issue it was actually a good quarter for RIM. I was hoping for closer to 9m sell-through but that's ok. I think next Q will be tough because a lot of people are waiting for BB10. The cash is great news because RIM can really put some money into marketing to compete with Apple and Samsung.

The biggest positive takeaway for me was the 255k playbook sales. No analyst is giving the PB any value to RIM but there are now close to 3M playbook owners. Once 4G PB is released with BB10 Blackberry may start making some money on its tablets.