Ministry of Innovation / Business of Technology

RIM shot: Can BlackBerry regain its corporate ripeness?

Analysts have revised their forecast of doom for RIM, but can the company be #3?

In case you didn't catch it last week, the news that Research In Motion is in a "death spiral" has been greatly exaggerated. After the company announced its latest financial results, some analysts have changed their tune, and now believe RIM is back on the road to world domination—or at least isn't going to implode.

In advance of Research In Motion's quarterly financial report and its BlackBerry developer event this week, analysts were using words like "death spiral" to describe their projections for the company. After the report, some totally reversed their opinions. National Bank Financial's Kris Thompson (or as I call him, "Mr. Death Spiral") told The New York Times that essentially everything he said two days earlier was totally wrong. “Everyone was expecting the worst, and they really over-performed on every metric,” Thompson told the Times' Ian Austen.

On the surface, it's hard to tell what metrics Thompson is talking about. RIM sold fewer phones than it has in any quarter in the last four years, and its revenue from hardware sales is a little more than half of what it was for the same period a year ago. The PlayBook tablet's sales are still languishing, after a brief bump brought on by deep discounts. And RIM's revenue from services, while not in that advertised death spiral, were up just a percent.

There's not a whole lot from a product perspective to base the upgrade on, either. While RIM gave yet another advance look at its upcoming BlackBerry 10 mobile operating system at the BlackBerry Jam Americas developer conference, you still can't buy a phone that runs it—and it will likely be at least six months before you can. Developers have the tools to build BlackBerry 10 apps, including updates to the software emulator and the developer "alpha" hardware that RIM has put in their hands, and a Microsoft Visual Studio C/C++ plugin for porting applications from Windows—but there's no one to sell their apps to yet.

And make no mistake: RIM didn't magically become profitable again, either. The company is still losing money, and it shipped fewer phones in the last three months than it has in any quarter in the last four years. What exactly is there to be celebrated in there?

From a financial perspective, there's one big thing: somehow, without shipping a new product, and in the face of Apple, Android, and Microsoft product launches, the company has managed to slow its bleeding.

Enlarge / While still losing money, RIM has pulled out of its financial dive.
Sean Gallagher, based on data from RIM financial statements

When RIM's CEO Thorsten Heins took the stick back in January when co-CEOs Mike Lazardis and Jim Balsillie were ejected from the cockpit, he took over a plane pointed at the ground. When you look at the company's net income as a percentage of revenue, it's clear things started to go bad with the release of BlackBerry OS 7—which the company had a hard time getting many users to adopt—and just got worse from there. Now, it looks like Heins has executed what seems like the financial version of a Hudson River landing after sucking a flock of geese through an engine.

Enlarge / RIM CEO Thorsten Heins' "Sully" maneuver brings RIM's operating nose back up.
Sean Gallagher, from RIM financial statements

For corporate and institutional managers who have been looking at their investment in RIM increasingly as a risk they need to start managing, this might be enough to prevent them from moving for a bit longer.

The power of low expectations

Seldom has losing nearly a quarter-billion dollars over three months looked so good. Apple reported that it sold 5 million phones over three days, and its stock price dropped 1.2 percent; RIM reported that it sold 7.4 million phones over three months, and its stock went up 17 percent. That's the power of setting low expectations—even bad news can be good news if you deliver it the right way. That includes finding a creative way to plead with developers to hang in there a little longer until a new platform ships:

RIM to developers: We're Gonna Keep on Lovin' You.

It also includes setting reasonable goals. Heins told BlackBerry Jam attendees, "We have a clear shot at being the number three platform on the market." And he's right—if BlackBerry 10 isn't delayed much longer, RIM has a shot at regaining some of its former glory as the official smartphone of corporate North America—at least enough of it to ease RIM into position behind Apple and the Android hive. The only real challenger for that position is Microsoft—and the only phone maker that's all-in on Windows Phone 8 is Nokia.

The power of the adoption curve

As it turns out, there is reason for hope buried in RIM's numbers, and in the tech that the company showed off this week at the BlackBerry Jam Americas conference. RIM has managed to make the most out of its lack of new phones by focusing on selling hard in places where that isn't as much of an issue. Despite the erosion of its share of the phone market in North America, the company has managed to keep getting existing customers to replace or upgrade their old BlackBerry phones with new ones even without 4G wireless or a high-volume app store. RIM marketed hard in Australia earlier this year, and also sold its phones heavily in markets where Apple and Android haven't had as much headway yet—Indonesia, for example.

As a result, while the company's sales of phones are still at the lowest point in four years, the average revenue for each of the phones it has sold has gone up. It's still nowhere near the high that RIM hit just before it introduced BlackBerry OS 7 in 2011, but RIM did manage to sell more of its high-end phones in the last three months. That's a stark change from when the company was leaning heavily on sales of its low-end phones overseas earlier this year. Additionally, while the company shipped 7.4 million phones, it grew its subscriber base to 80 million—up two million from the previous quarter.

The power of sucking less

While RIM's product line hasn't significantly changed in the past few months, something else has—people have gotten a good look at what competitors are offering the enterprise. And after getting that look…well, BlackBerry is looking pretty good. In a way, RIM has managed to turn "wait 'till BlackBerry 10" into a winning strategy—by biding its time and focusing on building its business overseas, filling in gaps in the sort-of-smartphone and feature-phone market, and avoiding the even more spectacular missteps of other competitors trying to stay relevant in Android's and Apple's wake. Nokia, which long held the leading global phone market, has embarked on an even-more spectacular course of self-destruction.

Nokia dumped its own mobile OS efforts and tied itself to the mast of Windows Phone. It hasn't exactly helped Nokia that much; Nokia sold four million Lumia phones in its quarter ending in June—before Microsoft threw them under the bus by announcing that the phones Nokia had already shipped wouldn't be upgradable to Windows Phone 8. And while there's certainly a lot of potential for Windows 8 Phone to play a big role in the enterprise, the OS is possibly even less ready for prime time than BlackBerry 10.

Meanwhile, RIM has focused on getting BlackBerry 10 right, continuing to invest in its own QNX Neutrino real-time OS, while giving developers tools to move applications over from other operating systems using Microsoft Visual Studio and the C and C++ programming languages. The BlackBerry OS and RIM's BlackBerry Messaging and Mail services still have a manageability and security edge over Microsoft's and other platforms.

The power of positive thinking

I want to believe. Yes, I may have written off RIM a few times since even before the company started its plunge, largely because of how badly managed RIM's response to the whole "bring your own device" phenomenon was (and the PlayBook, in particular).

But as a former IT manager, an early CrackBerry adopter, and a member of a generation that still likes the tactile feedback of actual physical buttons, I have a certain level of affinity for RIM. I would love to replace my battery-decimating iPhone 4S with a truly awesome BlackBerry 10—especially if it comes with an HD audio "O Canada" ringtone. And if the prices on PlayBooks come down any further, I may upgrade my daughter from her second-hand Samsung Galaxy Tab.

But as has been proven over and over again throughout tech history, having the best technology doesn't always mean a company will be successful—especially when that technology arrives long after the competition. So if RIM wants to push Microsoft out of contention for third place on the smartphone podium, they need to code faster.


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