RIM is unusual among smartphone manufacturesbecause it not only provides its own proprietaryoperating systems (similar to Apple) but also owns andoperates its own network infrastructure
. Many of RIM’s
iconic services such as push email and BlackBerry
Messenger (BBM), as well as the company’s security
and encryption suite utilize this infrastructure,bypassing carrier networks. RIM receives royaltypayments per BlackBerry user (subscriber) for use of these services. The company subdivides revenue intothe following components:
Sales of smartphones and tablets.
Payments made by carriers on behalf of BlackBerry users (subscribers)
for use of RIM’s
IT software solutions provided by RIM tocorporations for the management of their mobileworkforces.
Accessories, non-warranty repairs, BB AppWorld revenue and gains/losses on revenue hedgecontracts.Revenue by segment for the most recent reportedquarter (Q2FY13), filed on Sep 27, 2012:
In the last several years, we notice a trend of servicerevenue becoming a more important driver of both topline and bottom line performance. We first take a lookat the absolute trends:
As total revenue has decline from
in 2QFY13, service revenue has increasedfrom
in the same timeframe,representing a jump from
of total revenue.In other words, the service revenue category hasincreased in importance markedly:
As hardware margins are squeezed from increasedcompetition, service revenue has become the maindriver of profitability. Two things influence servicerevenue
total subscribers and Average Revenue PerUnit (ARPU), which is the average monthly fee RIMreceives per subscriber. As the handset marketincreasingly becomes the domain of low costcommodity manufacturers
, service revenue and consequently subscriber growth rate and ARPU become
the single most important factors for RIM’s long term
more specifically, the viability of the
company’s current business
Market Share Trends
The above chart is a reflection
of the company’s falling
aggregate device sales, coupled with the explosivegrowth of the Smartphone market. Note that tabletshipments are not taken into account, which wouldmake the numbers starker still. The viability of anymobile ecosystem is subject to a feedback mechanism -as market share deteriorates, it becomes increasinglydifficult to attract developers to the platform, leading toincreased sales pressure.
The company’s challenge is to
break this feedback mechanism.
Service Revenue as % of total revenue trendover last 11 quarters