Friday, August 13, 2010

Security Concerns A Roadblock To RIM's Future?

Research in Motion (NASDAQ:RIMM), which operates the popular Blackberry Messenger service, has been in the news recently for all the wrong reasons. Firstly the American President Barak Obama revealed that he was 'bored' of his blackberry handset with only a handful of people authorized to email the super-encrypted device and the company has ever since faced mounting pressure to open its secured data network for scrutiny by the governments of Saudi Arabia and the United Arab Emirates. RIM competes with Apple (NASDAQ:AAPL), Motorola (NYSE:MOT) and Nokia (NYSE:NOK) in the mobile phone market. Several other countries, including India, Algeria and Lebanon, have recently pushed for access to Blackberry data for law enforcement purposes.

If RIM denies their requests, its Blackberry Messenger service and/or smart phones could be banned from these countries. On the other hand, some Blackberry users might lose confidence in the service if they feel that their data is no longer confidential.

Why Business Users Prefer Blackberry

Despite the introduction of competing smart phone solutions, RIM's Blackberry remains prevalent amongst large business customers due to its track record of security and reliability. Heavy usage amongst business users helps RIM to 'condition' users to the Blackberry device making a switch less likely. RIMM's net profit margins of 16.5% are significantly higher than other mobile phone manufacturers of 5%, mainly because of RIMM's higher margin is its Service revenue segment but If numerous governments were to ban Blackberry Messenger services, RIM is likely to loose its USP which is its competitive advantage, prompting subscribers to buy other smart phones. Research in Motion (RIMM) has been getting brutally punished by Wall Street. Its stock is down 30% in the past 6 months from $75 to $56 per share.

RIM Market Trends:

Blackberry Mobile Phone Market Share increased from 0.4% in 2005 to 2.7% in 2009.

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