RIM And Nokia Have Bet Their Shirts On New Tech

Research In Motion and Nokia are competitors in the smartphone space. But when it comes to long-term strategy, it’s increasingly clear the two embattled companies are very much in the same boat.

Both have faced a tumbling stock price, executive shakeups and analyst negativity about their future prospects.

RIM and Nokia face the music

RIM earned $4.9 billion in revenue for the first quarter of fiscal 2012, down 12 percent from the previous quarter. Net income also declined, and executives on a June 16 earnings call acknowledged softening sales for the company’s increasingly antiquated BlackBerry line.

“The shortfall in the United States is primarily related to the age of the BlackBerry portfolio,” Jim Balsillie, RIM’s co-CEO, told analysts during the call. RIM is planning to lay off employees and start, in his words, the “streamlining of operations” in order to place the company in a more competitive position.

Meanwhile, Nokia is also facing some tough times. The rise of Google Android has eaten into the Finnish company’s previously ironclad lock on the lower-end phone market, and analysts have frowned on CEO Stephen Elop’s decision to abandon the company’s homegrown Symbian operating system in favor of Windows Phone.

“We would continue to avoid the stock as Symbian smartphone sales are falling off faster than expected and we are skeptical that new Windows Phone (WP) models will be able to replace lost profits,” Stephen Patel, an analyst with Gleacher & Co., wrote in a 31May research note. “Our checks suggest mixed carrier support for Nokia’s transition to WP.”

Both RIM and Nokia have placed their fates in the hands of an upcoming operating system, which will supposedly reinvigorate their respective brands. In RIM’s case, it’s a set of “superphones” based on its QNX operating system, which currently powers the company’s PlayBook tablet (reviewed here) . And Nokia is betting all on the aforementioned Windows Phone, a next-generation user interface designed by Microsoft as a replacement for its own Windows Mobile franchise.

But it’s a question of timing.

Will the saviour techs come in time?

RIM’s QNX-powered phones aren’t expected to reach the market before the second half of 2012, requiring the company to rely on BlackBerry OS 7 and upcoming devices such as the BlackBerry Bold 9900 and 9930. While the latter fit neatly into RIM’s overall design aesthetic, they’ve failed to excite analysts and mobile experts who keep expecting the company to do something more radical.

“We believe RIM has now squandered nearly every opportunity and competitive advantage it enjoyed through ineffective R&D resource management, delayed product launches and misreads of the competitive environment,” Morgan Stanley analyst Ehud Gelblum wrote in a note to clients, according to a 16 June Reuters report.

RIM’s transition to a QNX-based smartphone operating system also raises potential issues.

“QNX is a massive departure for RIM,” Peter Misek, an analyst with Jefferies & Co., wrote in a 17 June research note. “QNX is a Unix, Posix-certified OS that never has been deployed in this scale or way and has not had to work with an infrastructure that is 1) RIM’s Java-based NOC and node, BES, and BIS, and also 2) a spaghetti framework of Unix, Linux, and other carrier equipment OSs.”

Nokia’s Windows Phone devices won’t begin arriving before the end of 2011, and so much depends on the company’s ability to transition to the new platform from Symbian with relatively little audience attrition—a potentially tall order, considering how steeply Symbian device sales have fallen off.

“While we maintain our belief [that] the Nokia-Microsoft partnership is best positioned to potentially create a third viable smartphone ecosystem,” Canaccord Genuity analyst Michael Walkley wrote in a 1 June research note, “we are increasingly concerned about sales for Nokia’s Symbian devices during the transition period.”

If anything, some analysts seem more upbeat about Nokia’s long-term prospects. Research firm IDC recently estimated that Windows Phone, boosted by Nokia’s worldwide reach, will overcome both Apple’s iOS and RIM’s BlackBerry franchise to become, by 2015, the second-ranked smartphone platform after Google Android.

In IDC’s estimation, Android will continue to dominate with 43.8 percent of the market, followed by Windows Phone with 20 percent, iOS with 16.9 percent, Research In Motion with 13.4 percent, undefined “Others” with 5.5 percent, and Nokia’s soon-to-be-defunct Symbian with 0.1 percent.

“Underpinning smartphone growth is the rapidly shifting operating system landscape,” Ramon Llamas, an analyst with IDC, wrote in a statement accompanying that breakdown. “End-users are becoming more sophisticated about what kinds of experiences are offered by the different operating systems. Taking this as their cue, operating system developers will strive for more intuitive and seamless experiences, but will also look to differentiate themselves along key features and characteristics.”

Whether IDC’s prediction comes to pass, it’s clear that both Nokia and RIM are betting on the long-term, all the while hoping that existing market share and consumer loyalty will carry them through several bad quarters. Will these all-or-nothing bets pan out? Impossible to say—but until those companies’ saviour devices hit the market, you can bet their executives are suffering some sleepless nights.

Nicholas Kolakowski eWEEK USA 2013. Ziff Davis Enterprise Inc. All Rights Reserved.

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Nicholas Kolakowski eWEEK USA 2013. Ziff Davis Enterprise Inc. All Rights Reserved.

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