Why Verizon’s iPhone Won’t Be So Bad for RIM

It was about a year ago I was talking with Charles Wolf, the analyst at Needham and Co. in New York who covers both Apple and Research In Motion. At the time he promised that the day Verizon picked up the iPhone he would downgrade RIM to “sell.” I called him this morning to ask if that were still true. His answer? No, he’s not planning to downgrade RIM even though Verizon is expected to announce its first iPhone tomorrow.

A year ago, when Wolf first made that statement, he was right. An iPhone on Verizon would have been a severe blow to Research In Motion. That it will only amount to a sting this year says a lot about how RIM’s business has improved and how its revenue base has become more diverse in the year or so since.

RIM doesn’t disclose the identities of its biggest carrier partners, but it does disclose how much the top three contribute to overall sales, though it’s not hard to figure out that Verizon has traditionally been its biggest customer. A year ago, Verizon’s sales of BlackBerry devices contributed 25 percent of RIM’s overall sales, while the next two largest customers contributed 13 percent and 10 percent, respectively. At least one of those was AT&T.

Today the picture’s different. RIM’s biggest customer–and it may still be Verizon–accounted for only 12 percent of sales in the quarter ended November, while number two and number three each accounted for 9 percent.

RIM’s growth outside its top three countries–the U.S., the U.K. and Canada–has also picked up. According to figures from IDC, in 2007 RIM relied on North America for more than three quarters of its sales. As of the third quarter of 2010, that figure was down to less than 48 percent. And in a lot of these markets carriers don’t subsidize the phone as aggressively as U.S. carriers do, and so RIM ends up having an advantage on price: $250 or so versus $500 or $600 for an iPhone. RIM is also seeing strong growth in its prepaid business outside North America. During its Dec. 16 earnings call, CEO Jim Balsillie said prepaid sales in the U.K. had grown by 245 percent year-over-year.

Then there’s Android. Verizon threw a lot of weight behind Google’s Android platform last year and has been marketing it heavily all year. The results have been mixed. A study by ITG Investment Research last year suggested that Android didn’t give Verizon the competitive bump it had hoped for versus AT&T. Meanwhile, RIM has in the last year moved closer to AT&T and in August launched the BlackBerry Torch with that carrier, though it didn’t go as well as had been hoped.

It’s not like RIM isn’t going to take some damage from the iPhone. RIM shares are down this morning more than 1 percent. But for RIM it could have been much worse. In June, when Bloomberg News reported that Verizon planned to bring the iPhone to its network, I covered the story of how investors freaked out and lopped more than 6 percent off RIM’s valuation. Now investors seem to understand that it’s likely to hurt RIM’s overall share of the smartphone market, but it won’t be the disaster that it would have been a year ago.

Meanwhile, if you haven’t seen it already, make sure you watch the interview Walt Mossberg and Kara Swisher did with RIM Co-CEO Mike Lazaridis at D: Dive Into Mobile in December.

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