RIM counting on Kanata miracle
How QNX became critical to BlackBerry 10’s launch today
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.