Research In Motion Limited (USA) (NASDAQ:RIMM) (TSE:RIM) shares continued to plummet in early afternoon trading as investors react to a note in yesterday’s earnings report. Shares are down more than 19 percent so far since opening bell.
The Wall Street Journal’s Rolfe Winkler gave a thorough explanation about what has spooked Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM) shareholders. He explained that in the past, mobile operators have paid RIM a fee each month for each user of its BlackBerry phones. In return the mobile operator receives access to the company’s proprietary network for its users.
According to Winkler, those fees added up to about 36 percent of sales in the most recently completed quarter, while hardware accounted for 60 percent of sales. The problem with hardware sales is the fact they are a one-time deal. The consumer shells out the cash, and RIM gets paid—just once. But the user fees provided long term support for Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)’s stock rather than just a one-time benefit.
Research In Motion informed investors and shareholders yesterday in its earnings report that its new BlackBerry 10 device works differently than previous versions. Only customers who decide that they want to pay for extra services will pay. As the company told shareholders last night, its fees would be “under pressure” because of this change in its business model. The Wall Street Journal reports that analysts asked for more details on this change, but the company “sidestepped” those requests.
There’s no doubt in anyone’s mind that the BlackBerry 10 must be Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM)’s lifeline in order for it to survive. If users don’t like the new phone, then they certainly won’t be paying fees, and with this new business model, users won’t even pay fees unless they decide they want those extra services.