BlackBerry maker Research In Motion (RIM) will release second-quarter earnings Sept. 27. Analysts question the long-term viability of the company despite the imminent launch of the new BlackBerry 10, which goes on sale in 2013.
RIM once dominated the smartphone market, pioneering the use of mobile email with the introduction of the first BlackBerry in 1999—a two way paging device—and later moving to global leadership with the introduction of integrated push email and phone services as well as text messaging in 2003.
Some 10 years later, the company is struggling, suffering from the legacy of its once groundbreaking qwerty keyboard. Competitors such as Apple and Google have embraced the full touch technology from the beginning and analysts believe that RIM held on to its keyboard for too long, completing the transition with its new BlackBerry 10 model. Despite the fact that the device will have two versions—one featuring a keyboard and a touch screen, another with a screen only—the new operating system is now designed to support full touch.
“RIM’s unique selling point for hardware was its keyboard, a feature that is being displaced for all-touch devices in most markets and price segments,” writes Nomura in a report.
RIM CEO Thorsten Heins remains realistic: “There’s never an eternal proposition—there’s a very stable, slowly growing base of physical keyboard users and most of them are really highly ranked officers. At the moment it’s prudent to offer both keyboard and touch screen. If people love a physical keypad I will not talk them out of it but it’s one element of the larger experience,” he said in an interview with the Daily Telegraph.
Tough Competition, Change in Technology Reflected in Numbers
According to market research firm IDC, RIM’s share of the smartphone market plummeted to 4.8 percent in the second quarter, down from 12 percent the year before. A Bloomberg survey of research analysts predicts that the company’s sales will decline by 45 percent at the end of this fiscal year.
This year has been a complete disaster in terms of operating results, as unit shipments fell 30 percent in the first quarter and the gross margin contracted by 12 percent. This trend is unlikely to reverse, according to analyst expectations. The average estimate for earnings per share is a loss of $0.47 versus a loss of $0.37 in the first quarter. The company is eliminating 5,000 people out of a total workforce of 16,500, in a bid to save $1 billion per year and stay ahead of costs.
Despite these alarming figures, the company’s CEO remains optimistic and thinks that fortunes will turn with the introduction of the BlackBerry 10. He believes that the introduction of the full-touch phone with its own platform—distinguishing it from Apple’s iOS and Google’s Android—will give it a clear shot at claiming third place behind the two giants.
BlackBerry 10 to Combine RIM Strength With New Technology
At the BlackBerry Jam conference, held from Sept. 25 to Sept. 27 in San Diego, Calif., a preview of some BlackBerry 10 applications was provided. The new phone will have its own operating system and developers attending the conference were invited to create applications for it. Having the support of developers is crucial for creating an independent mobile platform.
Nick Manning, a company spokesperson cites a report by Vision Mobile, saying that BlackBerry developers achieve 4 percent higher revenue than iOS and 40 percent more than Android. “The cost of development for BlackBerry is significantly cheaper.”
If everything goes well, the new platform will compete with Windows Mobile for third place in smartphone operating systems. Thorsten Heins said at the event, “We want to leverage what you do, and give you an expanded platform to build upon.”
Heins is banking on the 80 million BlackBerry subscribers worldwide to embrace the platform as RIM still has one major advantage over competitors. The company provides services in the form of cloud computing that make it very easy for companies to sync email on the BlackBerry and PC-clients, such as Microsoft’s Outlook.
Apple and Google are lacking in that regard, but are catching up fast. “RIM’s messaging solutions remain industry leading but the gap is closing; the longer it takes for RIM to engineer a turnaround, the smaller the feature gap is likely to become, undermining the company’s key selling point,” says the Nomura report.
Heins furthermore plans to distinguish the RIM platform by making it possible to again combine private and business use in one phone, ending the times when busy jetsetters are seen juggling two smartphones at one time—a company BlackBerry and a private iPhone or Android phone.
Wall Street Skeptical of Execution
Despite the promising ideas and the support of developers—5,000 showed up at the event in San Diego—Nomura’s Stuart Jeffrey does not think that the company has the talent or the financial firepower to execute such an ambitious transition.
“Management seems intent on sustaining its customer base through aggressive discounting, even though this approach has failed for Nokia, Sony Ericsson, and Motorola, among others,” he writes in his latest report.
He also finds that RIM cannot compete with Apple and Google financially: “RIM is trying to drive an ecosystem despite spending just $1.4 billion on R&D and $2.2 billion on sales and marketing when Apple, Google, Microsoft, Nokia, Samsung, HTC, etc. are spending multiple times that on each part of their ecosystems. ... It is hard to see how RIM can build critical scale given its lower spending power.”
Nick Manning, on the other hand thinks that it is possible, but concedes that there is a very small margin of error: “Taking a hard look at other platforms and what we may do, the decision was to stay and develop our own ecosystem, knowing that we have to execute on that flawlessly.”
In the eyes of many analysts, the only saving grace could be a strategic acquisition, as was the case with Google buying Motorola, but this is deemed unlikely for various reasons. “All of this leaves the question as to what assets are left? The company has been looking at strategic options for some time and unfortunately has nothing to show for it, neither with licensing agreements or asset sales,” says a report by Deutsche Bank.
Manning admits that inventing the first new mobile platform “in years” will not be easy. “We acknowledged that we were in a period of transition and that we took the difficult decision to go our own path.”
Shares closed up 6 percent Sept. 26, which reflects hope that the numbers today could be a bit better than expected and that the BlackBerry 10 could be a success. The stock is down 53 percent year-to-date.
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