Research In Motion (NASDAQ:RIMM) announced that it will take a tiered approach to charging for its BlackBerry services--such as mobile device management, security and other services that use its proprietary messaging network--when it launches its BlackBerry 10 platform early next year. The news spooked investors, who sent the company's shares down around 15 percent on worries that the action will reduce RIM's "service" revenues, which account for roughly a third of the company's total revenues.
RIM separately announced that it reached a patent-licensing deal with Nokia (NYSE:NOK) in which RIM will make a one-time payment and ongoing royalty payments to Nokia, though the companies didn't disclose the financial terms of the agreement. The transaction again underscores the increasing importance of patents in the smartphone industry.
RIM posted quarterly financial figures better than some analysts had expected, news that sent the company's stock popping immediately after the company's announcement. However, investors quickly dumped RIM's shares after the company disclosed that it plans to start charging for its BlackBerry services via a menu-style pricing structure.
RIM CEO Thorsten Heins declined to provide specifics on the new pricing system, and refused to speculate on how the change will affect RIM's BlackBerry service revenues in the future.
"It is segment of service packages that we are going to offer. We have to realize that some of the smaller enterprises are actually good enough with just some email exchange product or connectivity to their mail server or their exchange server that they are running. So, there is very little value-add in this. And then as we invest into BES 10, you think about cross-platform over device management, you think about security that you can offer and you think about the Platinum package that is basically the all-in package that I would describe today as being the full BlackBerry package as you know it today, right all-in," Heins explained during the company's quarterly conference call, according to a Morningstar transcript.
"So, how that is going to be priced, what is the penetration rate into the market? That depends also on what is the BB10 penetration rate into those enterprises," he said. "So, these things are dependent on each other and we will provide more insight into this once we have clear view on those launch numbers, and those launch plans."
Analysts worried that RIM's new tiered BlackBerry service plans could dramatically reduce its services revenues, which have helped buoy the company's profits. "By doing this and lacking details, RIM has created a very large cloud of doubt about that high-margin revenue," Jennifer Fritzsche, an analyst at Wells Fargo & Co., told Bloomberg. "By our estimates, it's really the only real source of profitability."
In its fiscal third quarter RIM posted revenue of $2.7 billion, down 5 percent from the previous quarter and down 47 percent from the same quarter a year ago. The company's net loss for the quarter was $114 million, 22 cents a share. According to Reuters, analysts generally had expected a loss of 35 cents a share. Importantly, RIM said it managed to increase its financial war chest to $2.9 billion at the end of the quarter, up from $2.3 billion in the previous quarter, money RIM said it will spend to push its BlackBerry 10 products.
However, RIM reported its BlackBerry customer base fell to 79 million people, from around 80 million during its previous quarter. The decline is notable considering RIM was able to add around 2 million BlackBerry members during its previous quarter. RIM is hoping to sell its new BlackBerry 10 smartphones to both existing BlackBerry customers as well as new customers, which makes any decline in its subscriber base a concern.
During the quarter, RIM shipped 6.9 million BlackBerry smartphones and 255,000 BlackBerry PlayBook tablets. During the year-ago period, RIM shipped 14.1 million BlackBerry smartphones and 150,000 BlackBerry PlayBook tablets. The rise in RIM's PlayBook sales is notable considering the tablet continues to face stiff competition from Apple's (NASDAQ:AAPL) iPad, Amazon's (NASDAQ:AMZN) Kindle Fire and tablets running Android. RIM CFO Brian Bidulka explained that PlayBook sales were helped by strong "promotional activity" in North America.
"During the third quarter, we continued to demonstrate our strong financial position, generating $950 million in cash flow from operations, and increasing our cash position significantly to more than $2.9 billion. More than 150 carriers are currently completing technical acceptance programs for the first BlackBerry 10 products, and beta trials of BlackBerry Enterprise Service 10 are underway at more than 120 enterprises including 64 Fortune 500 companies," said Heins. "This is an exciting time."
RIM warned that in its coming quarter the company expects to report slowing sales of its existing BlackBerry 7 products as customers wait for the company to release its new BlackBerry 10 phones. RIM plans to unveil its new BlackBerry 10 devices Jan. 30, and begin selling them shortly thereafter.
"In addition, the company will be significantly increasing its marketing spending this quarter as expected, to support the global launch of BlackBerry 10, and the company expects to report an operating loss for the fourth quarter," RIM warned.
In other RIM news, the company said its CIO, Robin Bienfait, will retire. Bienfait is the latest RIM executive to leave the company as it works to release its new BB10 platform. Bienfait oversaw the company's BlackBerry messaging service and enterprise business.
- see this RIM release
- see this Nokia release
- see this CNET article
- see this Bloomberg article
- see this WSJ article (sub. req.)
- see this NYT article
- see these two Reuters articles
- see this Morningstar transcript of RIM's conference call
RIM's cash, BlackBerry subscriber numbers in focus ahead of earnings
RIM confident of BlackBerry 10 launch, will release first devices in February
RIM to hold BlackBerry 10 launch event on Jan. 30
RIM submits BlackBerry 10 to testing with 50 carriers
RIM ships 7.4M BlackBerrys, earnings please Wall Street
RIM adds 2M new BlackBerry subscribers
Article updated Dec. 21 to include information about RIM's tiered pricing plans and its patent-licensing deal with Nokia.