RIM on the Ropes

Story first appeared on NPR.

President Barack Obama couldn't bear to part with his BlackBerry. Oprah Winfrey declared it one of her "favorite things." It could be so addictive that it was nicknamed "the CrackBerry."

Then came a new generation of competing smartphones, and suddenly the BlackBerry, that game-changing breakthrough in personal connectedness, looks ancient.

There is even talk that the fate of Research In Motion, the company that fathered the BlackBerry in 1999, is no longer certain as its flagship property rapidly loses market share to flashier phones like Apple's iPhone and Google's Android-driven models.

With more than $2 billion in cash, bankruptcy for RIM seems highly unlikely in the near term, but these are troubling times for Waterloo, Ontario, the town of 100,000 that was transformed by the BlackBerry into Canada's Silicon Valley. RIM is Canada's most valuable technology company, an international icon so prestigious that the founder and its other driving force, are on an official government list of national heroes, alongside the likes of Alexander Graham Bell.

RIM's U.S. share of the smartphone market belly-flopped from 44 percent in 2009 to 10 percent in 2011 according to market researcher NPD Group. The company still has 78 million active subscribers across the globe, but last month RIM issued a warning that it will lose money for the second consecutive quarter, will lay off workers this year, and has hired a team of bankers to help it weigh its options. Last July it slashed 2,000 jobs.

Of RIM's 16,500 remaining employees, 7,500 live in Waterloo, a university town 90 minutes' drive from Toronto, where everyone seems to know someone who works for RIM.

The decline of the BlackBerry has come shockingly fast. Just five years ago, when the first iPhone came out, few thought it could threaten the BlackBerry. Now the Chief Executive says his employees are getting asked all the time, 'What's going on with you guys? What happened? I mean RIM is the star of Canada and what happened to you guys? And how bad is it going to go?'

RIM's software is still focused on email, and is less user-friendly and agile than iPhone or Android. Its attempt at touch screens was a flop, and it lacks the apps that power other smartphones. Its tablet, the PlayBook, registered just 500,000 sales to Apple's 11.8 million in the last quarter despite a price cut from $500 to $200, well below cost.

RIM's hopes now hang on BlackBerry 10, a new operating system set to debut later this year. It's thoroughly redesigned for the new multimedia, Internet browsing and apps experience that customers are now demanding.

The CEO, formerly RIM's chief operating officer, says he can turn things around with BlackBerry. He took over in January after the company lost tens of billions in market value and the founder stepped down along with the co-CEO.

RIM was once Canada's most valuable company with a market value of $83 billion in June 2008, but the stock has plummeted since, from over $140 share to around $10. Its decline is evoking memories of Nortel, another Canadian tech giant, which ended up declaring bankruptcy in 2009.

But Waterloo is home to more than 800 tech companies and is certainly no company town, many here insist. Smaller firms like e-learning company Desire2Learn have doubled their head count in the last year, and Google has opened an office here.

The chairman of the Center for International Governance and Innovation, a Waterloo-based think tank, likens Waterloo to Rochester, New York, where the blow of Kodak's bankruptcy filing is cushioned by the network of startups the company helped to spawn.

They've taken an enormous hit because of the collapse of Kodak, and Waterloo will take an enormous hit assuming that RIM ultimately vanishes from the scene, but the overall economy and region has been so fundamentally changed by RIM that it will actually do very well.

In an interview with The Associated Press at RIM headquarters in Waterloo, the CEO said he won't try to compete head-to-head with Apple but will try to build on RIM's strengths, such as its dominance of the corporate smartphone market. RIM says more than 90 percent of Fortune 500 companies use BlackBerry and that more than a million North American government workers rely on BlackBerry's software security.

But he acknowledges RIM failed to quickly adapt to the emerging bring your own device trend, in which employees bring their personal iPhones or Android devices to work instead of relying on BlackBerrys issued by their employers.

That's where BlackBerry 10 comes in — delayed but not too late to vie with the new Apple iPhone expected this fall, or so the company hopes. At the end of the day if the product is good you can always come back.

Other tech companies have indeed recovered from the ropes. The late Steve Jobs said Apple was less than three months away from bankruptcy when he rejoined it in 1997, and it's now the world's most valuable company.

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RIM Short Interest Doubles as BlackBerry Loses Ground to IPhone

Bloomberg

 

Bets against shares of Research In Motion Ltd. have doubled since April as investors wager the BlackBerry maker’s stock will continue to decline in the face of competition from Apple Inc. and Google Inc.

Short interest in RIM climbed to 31.1 million shares as of Aug. 31, more than double the level on Apr. 15 and the most since June 2007, according to data compiled by Bloomberg. Investors taking short positions borrow and sell a stock, aiming to profit by repaying the borrowed shares at a lower price.

“Everybody is so negative, the short positions continue to grow,” said Buzzy Geduld, chief executive officer of New York hedge fund Cougar Trading. He said he may short or buy the stock after the company’s earnings report today and doesn’t own shares at the moment.

Best known for handsets equipped with a full keyboard, RIM has struggled to create touch-screen devices that can compete with Apple’s iPhone and phones like Motorola Inc.’s Droid that use Google’s Android software. The BlackBerry Torch, a touch- screen model that went on sale last month, has received mixed reviews and generated what analysts say are lukewarm sales.

At the same time, the Waterloo, Ontario-based company faces challenges as it expands in overseas markets and the potential loss of business in its traditional corporate base. Countries such as India and the United Arab Emirates have threatened to ban BlackBerry services over security concerns.

Revenue, Profit Growing

Of 200 companies polled in the U.S. and U.K., 74 percent now let employees use devices other than BlackBerrys, according to an August survey by Sanford C. Bernstein & Co. JPMorgan Chase & Co., the second-largest U.S. bank by assets, may soon let employees use iPhones or Android phones for corporate e-mail, in place of the BlackBerry, for the first time, two people familiar with the situation said last week.

The stock has dropped 31 percent this year on the Nasdaq Stock Market as Apple has climbed by that percentage. RIM rose 97 cents to $46.49 at 4 p.m. New York time.

Marisa Conway, a spokeswoman for RIM, didn’t respond to messages seeking comment.

RIM is still boosting revenue and profit as mobile-phone buyers increasingly shift to smartphones that can surf the Web and play videos and music. When the company reports results for the latest quarter today after the close of regular trading, revenue is likely to jump 27 percent to $4.49 billion while net income surges 58 percent to $753 million, according to average estimates from analysts surveyed by Bloomberg.

‘Losing Mind Share’

Growth in the U.S. is slowing and the company is losing market share globally. RIM’s portion of the worldwide smartphone market slid to 18.2 percent in the second quarter from 19 percent a year earlier as customers opted for devices with larger screens and more applications, according to researcher IDC. Apple’s share rose to 14.2 percent from 13 percent, while Android surged to 17.2 percent from 1.8 percent.

“It feels like RIM is not in touch with what demanding, tech-savvy customers want,” said Nirav Parikh, senior vice president at Los Angeles-based TCW Inc., which manages $110 billion and sold all of its remaining 866,749 RIM shares as of June 30, according to a securities filing.

“They are losing mind share,” he said. “Their international growth is great, however those markets in the next couple of years may follow trends in the U.S., which don’t bode as well for RIM,” said Parikh.

Analyst Downgrades

While 31 of 54 RIM analysts recommend buying the shares, five analysts have downgraded the stock over the past quarter and nine now recommend selling. Among the RIM bears is Goldman Sachs Group Inc.’s Simona Jankowski, who cut her rating on the stock to “sell” in April and says the Torch didn’t do enough to change her mind.

“They really needed a very high-profile, very successful launch that was a really big hit,” Jankowski said. “That’s how high the bar was and they just didn’t clear it.”

Cougar Trading’s Geduld said he’s waiting to hear the company’s earnings news before deciding how to invest.

“I don’t think it’s quite a short and I don’t think it’s yet a long,” he said. “The real question is what are they going to say about the future.”

UAE to Bar BlackBerry E-Mail Over Security Issues

NY Times

The United Arab Emirates, citing security concerns, said Sunday that it would start blocking BlackBerry mobile services like e-mail and text messaging, the latest high-stakes clash between governments and communications providers over the flow of digital information.

The Emirates have been in a long dispute with Research In Motion, the smartphone’s producer, over the BlackBerry’s highly encrypted data system, which offers security to users but makes it more difficult for governments to monitor communications.

The decision could have significant implications for BlackBerry use in the Persian Gulf region, where Saudi Arabia has been closely studying the issue and may follow suit. Other countries, including Kuwait and Bahrain, have also raised concerns.

Disputes involving privacy and censorship have flared more frequently between governments and communications providers as the Internet connects people worldwide. In July, China and Google settled a standoff over access to information. YouTube has been periodically blocked in countries like Turkey and Pakistan, and Pakistan temporarily blocked Facebook in May because of what it called offensive, anti-Islamic content.

Officials of Research In Motion, which is based in Waterloo, Ontario, and the company’s outside public relations firm did not respond Sunday to telephone calls and e-mail.

The monitoring of information is a particularly thorny issue for autocratic regimes in the Persian Gulf worried that the Internet might be used for antigovernment purposes — a concern heightened by the passionate online response in Iran to the 2009 presidential election that helped energize the opposition and led to weeks of unrest.

The United Arab Emirates, in particular, were alarmed by the killing in January of a Palestinian operative in a Dubai hotel, possibly by a hit team from the Mossad, the Israeli intelligence agency. The episode infuriated the government, which wants to encourage tourism and business, and heightened its desire for increased electronic surveillance and security.

“The U.A.E. has never been a place that offered much in the way of electronic privacy,” said Jim Krane, author of “City of Gold,” a history of Dubai. “The government makes no secret that it monitors electronic communication, including text messages, phone calls and e-mail. The revelation that secure BlackBerry data is frustratingly out of the government’s reach only confirms this.”

Other smartphones, like the Apple iPhone, are not tied to one e-mail service. In general, that means e-mail to and from the devices mostly travels over the open Internet and can be relatively easily monitored.

But the BlackBerry uses highly encrypted data that is received by wireless carriers’ towers and is immediately routed through a closed, global network operated by the company. To enforce the ban, the carriers will stop forwarding that data.

Because of this level of security, the United States government allows many military and law enforcement employees to send confidential messages by BlackBerry, but it also makes surveillance correspondingly difficult.

As a result, R.I.M. officials have clashed with officials elsewhere in recent years.

In 2008, security agencies in India suggested that BlackBerry service might be shut down there unless R.I.M. installed servers in that country to allow them to intercept messages. The company refused, but sent representatives to meet with the Indian government. Indian regulators, while expressing reservations, have said they have no plans to restrict the service.

Analysts and telecommunications experts also believe that security concerns delayed the arrival of BlackBerry service in China. It is unclear what actions the company took, if any, to alleviate those worries.

There were conflicting reports Sunday about whether Saudi Arabia had also decided to ban the BlackBerry services. Some news agencies cited an interview with a Saudi Telecom official on the Al Arabiya television network that confirmed the decision, but in other Al Arabiya news reports company officials denied the service would be blocked

The Saudi authorities released no official statement, and an adviser to the Saudi government, speaking on the condition of anonymity, said no decision had been made as far as he knew. But one prominent Saudi economist, Ihsan Ali Bu-Hulaiga, said “it seems to me a number of other countries in the region will follow the lead of the U.A.E.” for the same security-related reasons.

In the emirates, concerns are also fueled by the fact that native Emiratis are a minority there, and the government regards electronic surveillance as an important tool against would-be terrorists, swindlers and other potential troublemakers drawn to the country’s relatively unfettered environment.

The United Arab Emirates is a federation of seven emirates in the southeastern corner of the Arabian Peninsula bordering Saudi Arabia. Among the seven states are Abu Dhabi and Dubai, both economic centers that encourage international trade and discourage financing of radical Islamic movements. Because of this, Mr. Krane suggested, the security concerns are not unfounded.

“The U.A.E. is an open country, a key travel and business hub, with one of the world’s largest airports and airlines,” he said. “It welcomes just about anyone to visit, and even to settle and work. Nationals of many countries don’t even need entry visas. In this environment, the government probably feels that electronic eavesdropping and surveillance are key to maintaining internal security.”

In a statement Sunday, a government body in the Emirates, the Telecommunications Regulatory Authority, said officials were prepared to block BlackBerry data service beginning Oct. 11 because it was the only service in the Emirates that exported mobile data to servers outside its borders. It will not affect phone service.

The agency also said that it had been trying since 2007 to strike a deal under which it would assume authority over BlackBerry services within that country.

“In their current form, certain BlackBerry services allow users to act without any legal accountability, causing judicial, social and national security concerns for the U.A.E.,” the agency said.

While the company has disclosed little information about the centers that manage BlackBerry services, it is widely believed that data from the Middle East is handled by a company operations center in Slough, England.

There are about 500,000 BlackBerry users in the United Arab Emirates, a large number of them in the business hub of Dubai.

“R.I.M. has had three years to address these security concerns,” said a U.A.E. government official, who declined to be identified because he was not authorized to speak publicly.

The dispute between the United Arab Emirates and R.I.M. took an unusual turn about a year ago when the company warned users that software described as a BlackBerry upgrade by an Emirates carrier, Etisalat, was actually spyware.

“Independent sources have concluded that Etisalat’s ‘Registration’ software application is not actually designed to improve performance of a BlackBerry Handheld, but rather to send received messages back to a central server,” R.I.M. warned customers in an online posting that included directions on removing the software.

RIM Said to Plan Tablet for November to Take on Apple's IPad

Bloomberg

 

Research In Motion Ltd., maker of the BlackBerry smartphone, plans to introduce a tablet computer in November to compete with Apple Inc.’s iPad, according to two people familiar with the company’s plans.

The device will have roughly the same dimensions as the iPad, which has a 9.7-inch diagonal screen, said the two people who wouldn’t be identified because the plans haven’t been made public. The device will include Wi-Fi and Bluetooth wireless technology that will allow people to connect to the Internet through their BlackBerry smartphones, the two people said.

RIM is racing to come out with a product to rival the iPad in the fast-growing market for devices that bridge the gap between smartphones and notebook computers. Apple, based in Cupertino, California, last month said it sold 3 million iPad tablet computers in 80 days after they debuted in the U.S.

“They can’t wait for a second generation of devices from Apple or they’ll fall too far behind,” said Ashok Kumar, an analyst with Rodman & Renshaw Inc. in New York.

RIM rose $1.83, or 3.3 percent, to $57.53 at 4 p.m. New York time in Nasdaq Stock Market trading, reversing an earlier decline of as much as 2.5 percent. The stock has dropped 15 percent this year, as Apple has climbed 22 percent.

Marisa Conway, a spokeswoman for RIM, declined to comment, citing company policy not to comment on rumor or speculation.

Blackpad Pricing

RIM plans to call the tablet Blackpad, according to one of the people familiar with the company’s plans. RIM, based in Waterloo, Ontario, acquired the Internet rights to blackpad.com this month, according to the Whois database of domain names.

Pricing for the device will be in line with the iPad, which starts at $499, the person said. RIM is focused on reaping additional profits from the tablet effort, rather than competing on price to sell a large number of devices, the person said.

RIM is stepping up its competition with Apple on multiple fronts. The company is hosting an event in New York Aug. 3 at which it will debut its BlackBerry 9800 slider phone, according to one person familiar with its plans. The device will feature a full touchscreen like Apple’s iPhone and a slideout Qwerty keyboard to allow for easy e-mail typing, the person said.

RIM plans to use the phone to regain the market share it has lost recently to its U.S. rival. RIM’s share of the smartphone market fell to 19.4 percent of global shipments in the first quarter from 20.9 percent a year earlier, according to researcher IDC, based in Framingham, Massachusetts. Apple claimed 16.1 percent of the smartphone market, up from 10.9 percent a year earlier.

Uphill Battle?

In the tablet market, RIM will have to demonstrate how its device can stand out against products including the iPad, which has attracted buyers because of its integration with Apple’s iTunes service and many software applications, or apps. More than 225,000 apps are available for Apple devices, the company said in June. RIM said in April it had more than 6,000 apps.

“With the success of the iPad, RIM faces an uphill battle,” said William Power, an analyst at Robert W. Baird & Co., who has a “neutral” rating on the stock. “RIM really has yet to demonstrate that it can roll out touchscreen technology to match the leaders in the space, most noticeably Apple.”

RIM’s tablet will capitalize on the BlackBerry’s e-mail capabilities and the phone’s popularity with corporate users, one person said. The tablet will be closely integrated with the smartphone’s e-mail system and will have similar security for messaging, the person said.

Cameras for Video

Wi-Fi would allow the device to connect to the Internet anywhere the wireless technology is available, including a home, office or coffee shop. When not near such Wi-Fi “hotspots,” people could connect wirelessly to their mobile phone with Bluetooth and then to the Internet. The device will not be able to connect directly to the cellular network the way some iPads can, the two people said.

The RIM tablet will also have front- and back-facing cameras for videoconferencing, Rodman & Renshaw’s Kumar said, citing sources at suppliers in Asia.

“I don’t think it’s a zero-sum game,” he said, saying that innovation by Apple, RIM and other competitors will increase the size of the tablet market.

Hewlett-Packard Co., which bought smartphone maker Palm Inc. this month, said it plans to produce a tablet device that runs on Microsoft Corp.’s Windows operating system. Korea’s LG Electronics Inc. said this month it plans to introduce a tablet computer in the fourth quarter that runs on Google Inc.’s Android software. Microsoft Chief Executive Officer Steve Ballmer said yesterday the software company plans to increase its focus on tablets.

BlackBerry's Tantalizing Fruit

Wall Street Journal

Is smart-phone pioneer BlackBerry in danger of becoming the AOL of the mobile-device market?

Verizon Wireless's launch on Friday of the Droid phone, a Motorola-built handset using Google's Android operating system, signals the opening of a new front in the smart-phone war. Early buzz on the Droid suggests it may be the strongest competitor to Apple's iPhone so far. But it is BlackBerry maker Research In Motion, more than Apple, that is particularly vulnerable.

BlackBerry has failed to build on the popularity of its email service with a robust Internet browser. That wasn't a major issue while the iPhone, available only on AT&T, was the only other game in town. But now the array of competitive smart phones includes the Palm Pre on Sprint Nextel as well as the Droid.

Apple already is closing the market-share gap with RIM, boosting its global smart-phone share to 17% in the third quarter, estimates Strategy Analytics, while RIM rose to 19.5%. For 2008, RIM was at 15.6%, and Apple, at 9.1%. RIM could see some defections in coming months. Consumers now represent the majority of new subscribers. But the percentage claiming to be very satisfied with their BlackBerrys fell five percentage points to 43% between June and September, according to research firm ChangeWave. Its research also showed erosion among corporate IT departments, historically RIM's sweet spot. Apple has made inroads among corporate purchasers, although it lags far behind RIM.

Of course, RIM could still reinvent the BlackBerry and recapture momentum. Even if it does, though, it may find it difficult to maintain profit margins. Consider: RIM's gross margin dropped to 44% in the latest quarter from 56% three years ago, despite little change in the average selling price of its devices. That is partly because the more complex devices coming onto the market are more costly to make.

Devices aren't likely to become simpler. Yet prices are likely to come under pressure as competition intensifies. RIM also could face a squeeze on the fee it charges carriers for each subscriber.

All that suggests RIM's gross margin will continue declining. What's more, as Deutsche Bank analyst Brian Modoff says, RIM will likely have to boost spending on R&D and marketing if it is to maintain its market share. The combined impact would be weak profit growth even if sales boomed. Citigroup analyst Jim Suva estimates RIM's operating margin will drop to 19.2% in fiscal 2011 from 23.1% last quarter, excluding litigation expense. That would slow EPS growth to just 1.7% in fiscal 2011 from this year, assuming 18% sales growth.

In the wake of a recent selloff, RIM is trading at 13.9 times consensus 2010 earnings. That appears cheap relative to stocks like Apple. But given the potential for slow earnings growth, it may be still pricey.