Will investors stay on board for the RIM ‘transition’?

Will investors stay on board for the RIM ‘transition’?

IAIN MARLOW — TECHNOLOGY REPORTER

WATERLOO, ONT.— From Saturday's Globe and Mail

Published Friday, Dec. 16, 2011 7:21PM EST

Last updated Friday, Dec. 16, 2011 8:52PM EST

With the launch of Research In Motion Ltd.’s (RIM-T13.97-1.83-11.58%)new line of smartphones now on hold for nearly a year, suffering investors are contemplating a key question: Is the company’s comeback plan worth waiting for?

RIM continued a year-long string of disappointments late Thursday when co-CEOs Mike Lazaridis and Jim Balsillie said its new batch of powerful devices running an upgraded mobile operating system called BlackBerry 10 would be delayed until late 2012 – as opposed to early next year as previously promised.

The devices were supposed to end what RIM’s top executives frequently refer to as “the transition.” But in the meantime, RIM has endured a year of product disasters, strategic embarrassments and falling market share that have driven the stock price down 76 per cent.

Reacting to the software delay, investors pushed RIM shares down nearly 12 per cent Friday to a nearly eight-year low. As news of the latest delay unfolded, analysts immediately began to question RIM’s rationale for the delay and worry whether the new BlackBerry operating system, when it eventually arrives, can possibly be good enough to save the company.

The technological landscape is changing rapidly, and rival devices that have already taken market share from RIM are certain to be even better by the time RIM’s new devices arrive.

Another uncertainty: Will software application developers – many of whom have already deserted RIM – hang around that long as sales of current BlackBerrys slump?

“Why do we think there’s going to be traction with the new platform?” asked Colin Gillis, an analyst with BGC Partners in New York. “By the time this thing comes out, the world will have changed – we’ll probably have the iPhone 5.”

Mr. Lazaridis blamed the delay on a particular type of chipset, which RIM wanted to use in the new phones, that wouldn’t be available until the middle of next year.

Chris Umiastowski, a Bay Street analyst who covered RIM for 10 years and now works as an independent consultant, wonders why a launch many see as crucial to the company’s survival was delayed on such a technical issue. Comparable technology already exists for the Long Term Evolution (LTE) wireless standard technology that RIM is now waiting on, he added.

“I think RIM either made a horrible decision to delay the phone for this LTE chipset,” Mr. Umiastowski said, “or the chipset reason is a smokescreen for the fact that the rest of the platform isn’t ready yet.”

Once Canada’s biggest company by market capitalization, RIM has fallen hard. Its current market value of $7.3-billion now ranks 57th among public companies in Canada, behind MEG Energy Corp., Canadian Utilities Ltd. and Saputo Inc.

For its part, RIM says the future remains bright. “RIM continues to have strong technology, unique service capabilities and a large installed base of customers,” Mr. Balsillie and Mr. Lazaridis said in a statement Thursday.

RIM’s next-generation BlackBerry 10 mobile operating system, based on software acquired from the 2010 purchase of QNX Software Systems, will be a variation on what currently runs on the company’s PlayBook tablet computer. Although the PlayBook has not sold well and has recently been heavily discounted in price, the device has been praised for having a much faster Internet browser than regular BlackBerrys, and contains a powerful processor that enables the tablet to multitask several applications at the same time.

But if BlackBerrys running the new operating system land in late 2012, they will be competing in a vastly different mobile space. Even with a promised advertising campaign to boost RIM’s profile in the U.S., a full year without compelling new devices could hasten the erosion of RIM’s brand equity and “mindshare” among consumers, says Kevin Restivo, a mobile device analyst with research firm IDC.

RIM’s overseas growth will likely remain a strong point, Mr. Restivo said. However, “RIM has less margin for error now. The first phone that comes out on that operating system needs to be a home run.”

Kunal Gupta, CEO of Toronto’s Polar Mobile, said RIM needs to shift away from emphasizing BlackBerry 10 and PlayBook, which has around 1 per cent of the tablet market, and focus on devices that are actually on the market now.

“BlackBerry needs to tell a story to the broader community about apps on [BlackBerry 7 devices] and why they have a value proposition for consumers,” Mr. Gupta said. “They have a lot of OS7 devices to sell in the next year ahead of their BlackBerry 10 devices.”

At the same time, RIM desperately needs to ensure that the developers who make applications, or apps, for its devices don’t desert the company more than they already have. As RIM has lost market share, it has made less sense for developers to make apps for BlackBerrys, as opposed to Apple’s iOS or Google Inc.’s Android mobile operating system, which now have much bigger app stores.

Kerry Morrison, CEO of Toronto-based Endloop Mobile, said it generally costs about two to three times as much to create a BlackBerry app for clients because of weak developer tools and the fact that RIM’s devices in the market often run different versions of the same operating system, on different sized screens, with different processing power.

“The sad reality is that we’ve not had a single request to develop a Blackberry app in the past six months,” Mr. Morrison said. “And with every new announcement from RIM the chance of that happening becomes less likely.”