Bloomberg News

RIM Turns to Carriers to Help Avoid a Repeat of Palm

January 11, 2013

RIM Says 150 Carriers Keep It From Palm's Fate

RIM will publicly unveil the first BlackBerry 10 phones on Jan. 30, with sales beginning in February. Photographer: Brent Lewin/Bloomberg

Research In Motion Ltd. (RIM) is counting on its relationships with 150 carriers to avoid the fate of another smartphone pioneer that fell on hard times -- Palm Inc.

RIM’s BlackBerry 10, due to be introduced Jan. 30, has been compared by analysts to Palm’s doomed WebOS, a smartphone operating system unveiled four years ago this week. The technology drew rave reviews at the Consumer Electronics Show and sparked a stock rally for Palm, only to fizzle months later.

Like Palm, RIM rebuilt its latest operating system to compete with Apple Inc. (AAPL:US)’s iPhone after years of market-share declines. RIM also has received positive reviews for the changes, more than doubling its stock since late September, including a 14 percent gain today.

The difference this time is RIM has the support of carriers around the world, said Frank Boulben, chief marketing officer for the Waterloo, Ontario-based company. Palm relied purely on Sprint Nextel Corp. (S:US), the No. 3 mobile-phone service in the U.S.

“They launched with one carrier worldwide,” Boulben said in an interview. “We are currently in the labs of 150 carriers around the world. We are not comparing things that are comparable.”

While Palm eventually added more carriers when the WebOS- based Pre phone was sold in Europe, the decision to debut with just one carrier in the U.S. was a “really, really bad choice,” said Alexander Peterc, an analyst at Exane BNP Paribas in London, who has a neutral rating on RIM. “RIM has wider carrier distribution going for it.”

Comparisons Persist

Analysts such as UBS AG (UBSN)’s Phillip Huang and Morgan Stanley (MS:US)’s Ehud Gelblum have compared RIM to Palm over the past two months, suggesting that optimism surrounding the BlackBerry 10 is excessive. In 2009, WebOS excitement sent Palm’s stock to about $18 from $3, only to fall back below $4 the next year. Palm’s revamped phones failed to catch on with consumers, and the company agreed to a takeover by Hewlett-Packard Co. (HPQ:US) in 2010. The products were discontinued the following year.

RIM’s rally “is reminiscent of Palm,” Huang said in a report last month.

The company’s 14 percent gain to $13.56 at the close in New York was the biggest since April 3, 2009.

There are technological similarities between the BlackBerry 10 and WebOS as well. RIM’s software lets users flip between apps with their fingertips, just as the Palm Pre did in 2009.

Touch Screens

In both cases, the companies faced the daunting task of pitching an unfamiliar platform to consumers, said Brian Blair, an analyst with Wedge Partners in New York.

With BlackBerry 10, RIM aims to persuade long-time BlackBerry fans to adopt a touch screen, rather than RIM’s hallmark keyboard. While the BlackBerry 10 lineup will include models with regular keyboards, RIM Chief Executive Officer Thorsten Heins has said he expects the touch version to account for most of sales.

“As they ask their 80 million customers to do this, those same customers are going to be taking an honest look at the other devices that are out on the market,” Blair said.

RIM’s most loyal business customers will give BlackBerry 10 an initial boost. That could account for 5 million to 10 million units in the first full quarter BlackBerry 10 is on sale, Exane BNP Paribas’s Peterc said.

Wooing the broader public will be tougher, he said.

“It will be enough to keep them going this year, but next year will be much harder,” said Peterc, who now mostly uses an iPhone himself. “As a consumer, I’ve moved on.”

Carrier Support

RIM will publicly unveil the first BlackBerry 10 phones on Jan. 30, with sales beginning in February. Some carriers -- including Rogers Communications Inc. (RCI/B), Canada’s largest -- have already begun taking BlackBerry 10 orders.

“If you have the carriers committed, that’s very important for a successful launch,” said RIM’s Boulben, who previously worked at Vodafone Group Plc (VOD) and France Telecom (FTE) SA’s Orange unit.

RIM also had 79 million subscribers and $2.9 billion in cash at the end of last quarter, money it can tap to market the new phones. Palm only had about $250 million in cash and short- term investments at the beginning of 2009.

Still, RIM today faces a hurdle that Palm didn’t. The smartphone market is more mature today, said Steven Li, an analyst at Raymond James Ltd. in Toronto. Apple’s iOS platform and Google Inc. (GOOG:US)’s Android also didn’t account for more than 80 percent of U.S. sales in 2009.

“Back then, smartphone penetration was still quite low and there was no entrenched ecosystem,” said Li, who has the equivalent of a hold rating on RIM. “Today you have two major entrenched ecosystems in Android and iOS, and smartphone penetration is maturing.”

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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