Technology

Research In Motion's Record Year


The BlackBerry maker's Pearl smartphone is a hit with consumers—and that has rivals such as Palm playing catch-up

With rivals springing up or teaming up on all sides, Research In Motion, the Canadian company behind the popular BlackBerry line of wireless e-mail devices, shows no signs of slowing down.

For its fiscal third quarter, Waterloo (Ont.)-based RIM (RIMM) reported sales of $835 million, up 49% from the same period a year ago, and profits of $176 million, or 93 cents a share. That beats the year-ago quarter by 46%. The company says it added 875,000 subscribers during the quarter, bringing its total subscriber base above the 7 million mark. Chief Financial Officer Dennis Kavelman told analysts during an earnings conference call that the company expects to add 950,000 to 975,000 subscribers in the current quarter and should come "very close" to hitting the 8 million mark before the end of the fiscal year. The news sent RIM's stock soaring in after-hours trading Dec. 21, picking up $7.50, or more than 5%, to hit $141.35.

Propelling the company's growth was Pearl, RIM's latest phone-PDA hybrid device aimed more at consumers and less at its traditional customer constituency of busy executives. The Pearl is the first BlackBerry phone to include integrated camera and music-player features. T-Mobile, a unit of Deutsche Telekom (DT), was the first service provider in the U.S. to carry the Pearl device, and Cingular Wireless, a joint venture of AT&T (T) and BellSouth (BLS), launched its own version of the Pearl recently. Cingular is RIM's biggest wireless distributor.

Competition Rising

RIM reported the results for the third quarter of its fiscal year 2007 on a preliminary basis only, as the company is still in the midst of an voluntary internal investigation into its practice of granting stock options to employees. It has been providing updates on the investigation every two weeks since the matter was first disclosed Sept. 28. The company says it expects to restate its second-quarter numbers, but doesn't expect a material change to more recent results. It has yet to file finalized second-quarter results with regulators.

RIM's strong results and the success of the Pearl device are taking place against the backdrop of a scramble by hardware manufacturers such as Motorola (MOT) and Palm (PALM) to break its hold on the market for smartphones. Motorola's Q phone, a handheld with a keyboard similar to the Pearl's, launched last year with software from Microsoft (MSFT) and a strong relationship with Verizon Wireless.

Last month, Motorola said it would acquire Good Technology, a privately held wireless-messaging company. Good's mobile-messaging software competes directly with RIM's BlackBerry Enterprise Server in the market for wireless messaging systems aimed at business customers.

Palm's Problems

Additionally, RIM said on Dec. 12 that it had sued South Korea's Samsung, alleging trademark infringement. RIM claims Samsung's new BlackJack device, which recently launched with Cingular Wireless, infringes on the BlackBerry name.

Meanwhile, Palm, which announced the Treo 750 earlier this year with RIM squarely in its competitive sights, reported slowing overall sales as the result of a delay in the release of that device. Palm Chief Executive Ed Colligan said on Nov. 27 that the Federal Communications Commission was taking longer than expected in the approval of the Treo 750. On Dec. 19, Palm said it earned $12.8 million, or 12 cents per share, on revenue of $393 million. Nokia (NOK) too has been eyeing RIM's business, releasing its own phones with messaging capabilities. Even Apple Computer (AAPL) is thought to be getting into the wireless-messaging game with a long-rumored phone, expected early in 2007.

"Sure the sharks are circling, as they always have and will always be. But no one is swimming faster than RIM," says Rob Sanderson of American Technology Research in San Francisco.

More Crossovers Coming

And RIM looks ready to keep up the pace, with more devices in the pipeline. A product code-named Indigo, that looks a lot like the sleek Pearl phone but which sports a full keyboard instead of the Pearl's abbreviated keyboard, is expected in early 2007. Yet another device with a full keyboard, code-named Crimson, is expected in mid-2007. There has been some speculation that Crimson will work with blazing-fast EDGE-based wireless phone networks and also connect to the Internet via Wi-Fi hotspots. If that turns out to be the case, it suggests the device will support both traditional wireless calls and Internet-based voice calls.

RIM co-CEO Jim Balsillie didn't comment on the new devices during a conference call beyond saying there would be "something else" coming from the company. "There will be a lot of crossover between the consumer and the enterprise side of the business," he told analysts. "There's a whole lot that will become much clearer over the next six calendar months," he added.

Hesseldahl is a reporter for BusinessWeek.com.

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