After years of turning in stellar earnings reports, Jim Balsillie, the combative and energetic CEO of BlackBerry-maker Research in Motion (RIMM), was forced to do some backpedaling on the company’s conference call for its most recent quarterly results.
Though RIM increased its revenues by 18 percent from the same period one year ago, and its earnings per share by 41 percent, that still disappointed Wall Street. RIM’s shares have tumbled more than 7 percent today, as investors cast a wary eye on competitive pressures that suddenly cast Research In Motion’s future into doubt.
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| Balsillie: What, me worry? |
Those pressures were underlined by a new smartphone brand-loyalty survey from Crowd Science, which showed that nearly 40 percent of BlackBerry users would switch to the iPhone, given the chance. One-third would choose a device running on the Android operating system. In addition, there have been persistent rumors that Verizon, tiring of persistently high return rates, will drop the BlackBerry Storm.
Briefly put, a question that would have seemed inconceivable only a year ago now seems highly pertinent: Will the BlackBerry, once a must-have workhorse and status symbol for millions of corporate executives (and wannabes), be able to survive in the new era of the iPhone, Android, and other deluxe smartphones?
Losing Differentiation
A closer look at the earnings report indicates that the answer may well be, “Probably not.” Unit shipments in the period were lower than expected, at 10.5 million. What’s more, many of those were lower-priced models, like the BlackBerry Curve, and growth seems to be occurring in less desirable markets outside North America and East Asia. While Balsillie blamed these developments on familiar corporate scapegoats (“inventory adjustments” by customers, and “product mix”), Wall Street analysts have taken a grimmer view.
“We think RIMM’s products will increasingly lose differentiation as the focus shifts from e-mail, where RIMM leads all competitors, to applications, where RIMM lags both iPhone and Android,” wrote Goldman Sachs analyst Simona Jankowski (as quoted on Barron’s Tech Trader Daily blog), who downgraded RIM’s shares to Sell from Neutral. The company’s North American business is “already in decline,” she added, and overseas growth will not be strong enough to offset that trend.
Essentially, Research in Motion made a strategic decision a long time ago that is now coming back to haunt it. Like the iPhone, the BlackBerry runs on a closed, proprietary operating system. In the case of Apple (AAPL), the iPhone’s runaway popularity, and the appeal of applications sold through its App Store (not to mention the glowing early reviews of the new iPad), have made that a moot point. App developers are clamoring for attention and downloads on the iPhone.
