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RIM reboot: BlackBerry 10 is key to its survival

7:50 AM, Feb 1, 2013   |    comments
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SAN FRANCISCO - Research In Motion CEO Thorsten Heins publicly denies the BlackBerry maker is in a "death spiral" as it explores sell-off options, patches up management and refashions its losing smartphone in a massive gamble.

With its stock up more than 200% since September, a lot is riding on him.

Corporate turnarounds are an exotic U.S. business dance: IBM, Cisco Systems, Ford Motor and Apple staged dramatic reversals of fortune. Others - like Palm Computing and Kodak - serve as cautionary tales. Which path will the BlackBerry maker follow?

RIM, based in Waterloo, Ontario, Canada, is getting closer to answering that question. The smartphone pioneer today launches its revamped smartphone line after years of drubbings in the market it helped define. A lot depends on the BlackBerry 10: the entire company.

"Sadly, I expect this company to go the way of Kodak - a victim of a market it helped to create," says Vivek Wadhwa, a fellow at Stanford Law School. Kodak filed for bankruptcy protection in 2012.

Before Apple's iPhone, RIM's BlackBerry was the No. 1 smartphone. The runaway popularity of touch-screens changed all that. But instead of quickly adapting, former RIM co-CEOs Jim Balsillie and Mike Lazaridis refused to see the writing on the wall. A year ago, after investor outrage, they voluntarily stepped down.

RIM declined to make Heins, who took over last January, available for comment.

Adding another thread of turmoil to the narrative, a pack of star engineers has bolted for the exit amid the uncertainty, says a former employee who spoke on the condition of confidentiality, complicating the company's biggest product launch in history. This comes as RIM slashed 5,000 jobs last year and its CIO of six years, Robin Bienfait, left at the end of 2012.

RIM had to delay the BlackBerry 10 launch andforgo its entry despite clockwork advances from Apple and Samsung, pushing deeper into sales of devices and digital media.

RIM's last stand?

RIM's launch of BlackBerry 10 devices and a new operating system called QNX represent the company's last stand, experts say. The software has garnered rave reviews in early alpha versions for leaps in user interface advances, but it is criticized for a lacking app- and media-store presence.

"They need very strong market reception," says Forrester analyst Charles Golvin.

To its credit, RIM has signed media services from Rovi to provide a market for movies and TV to the new devices when it launches, according to sources familiar with the new BlackBerry rollout. RIM declined to comment.

Clawing away Apple and Android loyalists could prove difficult. Nonetheless, RIM's stock has been snapped up in anticipation of a splashy RIM entry - a proposition that could burn investors should sales fizzle.

"It's low odds" for success, says Deutsche Bank Securities analyst Brian Modoff. "You have two well-developed ecosystems and another already banging on the door" from Microsoft. Experts contend Microsoft has an edge over RIM with sheer size, spanning PCs and tablets, and a jump-start with Windows Phone 8.

RIM reported it lost about 1 million subscribers, to 79 million, in the third quarter. Heins also said RIM will revamp the services fees - about a third of its revenue base - charged to customers for using its network. A hit could be felt this year. But the company sits on more than $2.9 billion in cash. "That gives them a little bit of breathing room," Modoff says.

Still, Heins remains an unproven turnaround captain. And the company will have to spend huge amounts on marketing its new device and likely take multiple quarters of loses as a result.

Despite RIM's recent stock run-up, shares at $15.66 have plummeted 90% since a high of $150 in 2008.

"Research In Motion was a hot stock with their BlackBerry until sales fell off a cliff," says Jay Ritter, a finance professor at the University of Florida.

Consumer angst?

BlackBerry fans are either nervous or optimistic - or both.

"I'd love to be wooed back to BlackBerry," says Scott C. Thompson, 53, a U.S government lawyer from Newtown, Pa. "Even if it's a killer phone, will it be around?"

Such buyer caution may already be widespread. A nationwide survey of nearly 600 people conducted by SurveyMonkey for USA TODAY found that 80% of respondents replied "not at all interested" in the new BlackBerry 10 smartphones.

To be sure, U.S. consumers and BlackBerry loyalists will face compelling devices. RIM doesn't want to alienate its hard-core fans of physical keyboards and promises a Qwerty keyboard. At the same time, it is launching a roomy touch-screen keyboard to upstage the iPhone's.

"I'm rather bullish on RIM's prospects," says IDC analyst Ramon Llamas. "This is not your father's Oldsmobile - this is a radical change."

Consumers might also be wowed by the software. RIM has carefully redesigned how people can navigate apps, social media, messaging and e-mails. As a result, multitasking can now happen in one screen, known as its BlackBerry Hub, where people can respond to Facebook, Twitter, Google Gmail and just about any messaging. The idea is to make it so that people don't have to toggle back and forth from apps all the time, as is common on iPhones.

A complex task, RIM is placing a huge bet on revolutionizing the smartphone navigations familiar to most people. For starters, RIM in 2010 purchased the QNX operating system that will power its new devices. Later that year, RIM bought user interface design firm The Astonishing Tribe, or TAT, a Swedish firm known for guiding some of the biggest mobile brands on designs.

Marshaling new forces while laying off nearly 30% of its workforce wasn't likely easy this past year. Not to mention managing the chaos of a brain drain of workers bailing with a sense of doom. That likely contributed to BlackBerry 10's delay.

"They have wasted quite a bit of time bringing this product to market," says Gartner analyst Carolina Milanesi. "They can't really stumble - this is it."

It's of little surprise that RIM's downtrodden business culture struggled to work with the young and hip tech design firm TAT, according to reports in The Wall Street Journal. TAT was "absolutely fundamental to BlackBerry 10 in the way it works and functions and operates," says Nick Manning, RIM's communications manager.

Despite the reported differences, early reviews suggest the user interface advancements are worthy rivals to Apple's iOS, Google's Android and Microsoft's Windows Phone 8. Some experts say even that won't matter.

"Palm was in the same situation as RIM's BlackBerry is in now. Palm had a really sexy OS, and the market said, so what?" says Mark Rolston, chief creative officer at Frog Design, a firm that consulted on early Apple computers. "It was arguably sexier than this."

Split personality

RIM relies on deep roots with enterprise customers. For years, the BlackBerry was considered more secure and gave it prominence among IT departments. That has made it a hit with government customers. But advances in security software, combined with worker demands for support of iPhones and Android-based devices, have changed things.

RIM still wants to court its business customers. At the same time, it wants to expand into consumer markets. So it has created something of a hybrid smartphone appearance that allows people to toggle between business and consumer smartphone appearances and their apps.

RIM calls it BlackBerry "Balance" but some experts are calling it a bad case of identity crisis. "It may be a false trade-off that doesn't exist anymore," says David Tan, assistant professor of strategy at Georgetown University. "It always makes the hair of our neck stand up when companies try to straddle two positions. It could be one of those things that ends up not appealing to either segment."

Serving the consumer smartphone market has been a huge boon for the likes of Samsung and Apple. Missing that boat has cost RIM dearly. Worldwide sales of RIM's smartphones are forecast to decline 36% from 2012 to 2016, according to researcher Gartner, giving it just 1.1% of the market by then. That compares with estimates for Android, at 55%, Apple's iOS (11%) and Microsoft Windows (9.7%) in 2016.

Dated image

Ultimately, RIM may have to fix a BlackBerry image problem. Samsung - known for commercials that ridicule Apple - recently turned its humor on the BlackBerry.

Samsung poked fun at an inability to quickly perform basic tasks and showed an older employee with both a BlackBerry phone and an iPhone. "This one is for work, this one if for home," she says.

Yahoo CEO Marissa Mayer delivered another blow to RIM. "We literally are moving the company from BlackBerrys to smartphones," she told Fortune in November. She said it was important for the company to understand iPhones, Android and Windows 8 as it focuses on mobile strategy.

Nobody wishing to look tech-savvy wants to be seen toting one. A woman recently leaving a Google event with a BlackBerry phone and an iPhone was asked whether she believed there was a stigma against using RIM's smartphones in Silicon Valley. She declined to comment, saying she wouldn't want her employer mentioned in such a story.

"A lot of people are embarrassed about showing their BlackBerry," analyst Milanesi says. "It's an enterprise thing, so you keep it. I think that's what they are suffering from as well. They have a much longer replacement cycle."

"You recognize them," adds Rolston "You also think that's grandpa's phone, or dad's phone - it's not real cool."

(Copyright © 2013 USA TODAY)

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