RIM count­ing on Kanata mir­a­cle

How QNX be­came crit­i­cal to Black­Berry 10’s launch to­day

Ottawa Citizen - - FRONT PAGE - Jbag­nall@ot­tawac­i­t­i­zen.com

If Wed­nes­day’s Black­Berry 10 launch ac­tu­ally pumps new life into Re­search In Mo­tion Ltd., the folks at QNX Soft­ware Sys­tems will have pulled off a mir­a­cle.

QNX is the Kanata firm that the Black­Berry maker picked up in June 2010 for $200 mil­lion. At the time, RIM founder Mike Lazaridis talked vaguely about how QNX might con­trib­ute “long-term syn­er­gies” to RIM’s re­search ef­forts. He pro­vided no hint that QNX’s rock-solid op­er­at­ing sys­tem would one day be­come the brains of the Black­Berry — and that the fate of RIM would rest upon its success.

Lazaridis, now long gone from the firm, knew some­thing had to be done about the Black­Berry’s weak web brows­ing ex­pe­ri­ence — RIM de­signed the hand­set’s orig­i­nal op­er­at­ing sys­tem for wire­less email and added brows­ing later. Ap­ple Inc., which launched the iPhone in June 2007, had the ad­van­tage of a clean sheet of glass and cre­ated magic on a hand­held screen. Co­in­ci­den­tally, the same quar­ter QNX be­came part of RIM was the very last one in which ship­ments of Black­Ber­rys out­paced those of iPhones.

RIM slipped from 11.2 mil­lion Black­Ber­rys that pe­riod to 6.9 mil­lion in its most re­cent quar­ter while iPhone sales soared from 8.4 mil­lion to 47.8 mil­lion in its lat­est re­port­ing pe­riod.

The trend, of course, is well known. But imag­ine what it was like for QNX de­vel­op­ers who were faced with cre­at­ing an iPhone ri­val — killer is way too strong — against a back­drop like that. And it wasn’t just one bat­tle be­ing waged. Once RIM de­cided it would use QNX soft­ware to de­velop a new Black­Berry op­er­at­ing sys­tem, it opted to do so in two stages. In the first, it would cre­ate a seven-inch tablet that used QNX tech­nol­ogy — the Playbook was launched April 2011. RIM would use that ex­pe­ri­ence to in­form its ef­forts to cre­ate the Black­Berry 10.

But the Playbook got clob­bered by Ap­ple’s mo­men­tum. Ap­ple launched its iPad roughly the same time QNX was be­ing ab­sorbed into RIM. In its most re­cent quar­ter, Ap­ple sold nearly 23 mil­lion of th­ese de­vices com­pared to just 255,000 Play­books for RIM. The fi­nan­cial risks of this fast-mov­ing busi­ness be­came ap­par­ent when RIM was forced to take a $485-mil­lion in­ven­tory write­down in the value of its un­sold Play­books.

Through it all, through the re­lent­less rise of Ap­ple and then Sam­sung — which has cham­pi­oned the An­droid op­er­at­ing sys­tem — QNX de­vel­op­ers have hun­kered down in their Kanata bunker, driv­ing to­wards the Black­Berry 10’s Jan. 30 launch date. Con­fi­dence in their own tech­ni­cal prow­ess re­mains high — QNX soft­ware is used in traf­fic con­trol sys­tems, nu­clear power plants and casino gam­ing con­soles pre­cisely be­cause it is so re­li­able and ca­pa­ble of do­ing many tasks at once.

The un­cer­tainty sur­round­ing the Black­Berry 10 lies else­where, in im­pon­der­ables such as mar­ket­ing, the cool fac­tor and the in­flu­ence of ecosys­tems such as Ap­ple’s on­line me­ga­s­tore, iTunes. Ap­ple and An­droid hand­sets such as Sam­sung’s Galaxy S III have grabbed a mas­sive share of the smart­phone mar­ket — an as­ton­ish­ing 95 per cent in the U.S. in the 12 weeks ended Thanks­giv­ing week­end, ac­cord­ing to trend-mon­i­tor­ing group Kan­tar. (Sam­sung has nearly half the An­droid share.) This means RIM ap­pears for the moment to be re­duced to fight­ing for scraps with the Nokia/Mi­crosoft al­liance and its Lu­mia phones.

But RIM can take some so­lace in the ex­tremely volatile his­tory of this very young in­dus­try. Less than three years ago, it and Nokia were the dom­i­nant play­ers. Given the huge cash re­sources of the new cham­pi­ons, it’s un­likely RIM can chal­lenge for the top spot again. But it may be able to se­cure a prof­itable niche as the num­ber three player. With nearly 80 mil­lion Black­Berry sub­scribers out there, many of them un­doubt­edly hun­gry for an up­grade, RIM at least has a good start­ing point for a come­back. And the com­pany doesn’t in­tend to limit its mar­ket­ing to ex­ist­ing sub­scribers.

An­a­lysts are cau­tious, with most rat­ing RIM a hold, es­pe­cially af­ter the re­cent run up in the firm’s share price from a 52-week low of $6.10 on the TSX to $18.53 be­fore Tues­day’s pull­back to $15.71. And more bad news is coming — the com­pany is ex­pected to report a year-overyear slide of nearly 40 per cent in rev­enues to $11.5 bil­lion (all fig­ures U.S.) for its 2013 fis­cal year end­ing Feb. 28.

But if the BB10 prod­ucts do rea­son­ably well, it will be easy for RIM to report smart growth af­ter that — fis­cal 2014 will be com­pared to a stun­ningly weak fis­cal 2013. For in­stance, TD Se­cu­ri­ties an­a­lyst Scott Pen­ner ex­pects RIM will report rev­enues of $15 bil­lion in fis­cal 2014 com­pared to $11.7 bil­lion in fis­cal 2013. While that’s well be­low RIM’s peak year of nearly $20 bil­lion in sales, it would mark a nice change in mo­men­tum. Whether RIM re­turns to prof­its in the coming year — and Pen­ner be­lieves it will — will de­pend en­tirely on the re­cep­tion of its QNX-based prod­ucts.

It’s pos­si­ble the Black­Berry 10’s new features will fi­nally al­low RIM to be­gin claw­ing back some of the mar­ket share it shed so quickly af­ter 2010. Among the hand­set’s sell­ing features are an abil­ity to nav­i­gate smoothly from one ap­pli­ca­tion to an­other, a faster browser, ex­tra se­cu­rity and a fea­ture that al­lows the sep­a­ra­tion of work and per­sonal in­for­ma­tion.

RIM is ex­pected to make an all­touch ver­sion — the Z-10 — avail­able first, fol­lowed by the X-10, which will have Black­Berry’s trade­mark key­board for typ­ing emails.

It’s not a rev­o­lu­tion, but it just may be solid enough to save the fran­chise.


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