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RIM Earnings: The Company Needs a Defendable Market

Research In Motion (RIM) announced quarterly results yesterday that exceeded analyst expectations, with revenue up 31 percent year-over-year and 9 percent higher than the previous quarter, net income 67.5 percent over the previous year's, and, most importantly, unit sales hitting 12.1 million.

And yet, Apple (AAPL) and Google (GOOG) continue to race ahead, incumbent leader Nokia (NOK) is losing market share but still a major force, and handsets running Microsoft (MSFT) Windows Phone 7 will start shipping next month. In the face of competition and overall smartphone sales growing far faster than RIM's, is RIM doing well? In trouble? Maybe the truth is that we all need to adjust the way we look at this emerging market.

Of course RIM emphasized that the 12.1 million units was an all-time record, but that actually says little. For years, BlackBerry unit sales have at least matched the previous quarter's and generally exceeded them, so the chances of a new quarter bringing a record is pretty high. (In the 12 quarters of data I have on hand, the probability is about 91.7 percent.)

The 12.1 million is more than the 10.9 million or 11 million I had expected, but notice that sales growth is still largely following a straight line. Even as the smartphone market has begun to take off, it's been business as usual for RIM.

RIM management admitted that competing iOS and Android devices have hurt the company's efforts. A number of analysts cut their share price targets for the company today. The rationale is that international growth has masked slowing sales in North America, and there's something to be said for that analysis.

And yet, there's also something a bit nutty in this. Analysts set expectations, a company passes them, and suddenly it's not good enough because RIM got too much from international growth -- ironically, a major area for Apple and Google, as well.

Too many people assume that business is an all-or-nothing affair, and it's not. RIM is unlikely to catch either Apple or Google, and efforts like the BlackBerry Torch aren't going to help. But does that matter? If RIM can continue to constantly grow sales, does the falling share of a total market really matter?

There's nothing wrong with a niche market if it provides a viable business strategy. Although Apple's success is over-sized, it's only lately that the company has begun to think beyond market niches. Premium pricing generally guarantees that a product won't be the mass market choice.

RIM won't grow the way Apple has, but it can continue to focus on a specific market: corporate users. The difficulty for the company is that these people are still consumers and, thus, often drawn to popular consumer products. As I said last month, RIM must refine its market definition. Saying "corporate" isn't clear enough.  If RIM can find the point of pain the BlackBerry has been able to salve, it has a defendable business. The analysts won't be happy, because they always seem to assume that growth is the only reason for a company's existence. But growth for its own sake is the description of a cancer, not a healthy organism -- or organization.


Image: user Abyla, site standard license.