Blackberry looks to uncertain future

The smartphone has inspired devotion among users but the company risks losing its way in the market.

Obama had to change the rules to bring his beloved BlackBerry into the White House, while celebrities from Paris Hilton and Arnold Schwarzenegger to Lady Gaga are rarely spotted without theirs. Some customers of the smartphones, made by Research in Motion (RIM), jokingly refer to them as "Crackberries", because of their addictive qualities. But industry insiders are raising questions over whether consumers are about to go cold turkey.

On the surface all seemed well on Thursday when the Waterloo, Ontario-based group posted strong full-year revenues that hit $19.9bn in the year to the end of February, up a third over a year earlier, as it shipped 52.3 million phones.

Co-chief executive Jim Balsillie was bullish about the company's position and talked of "laying a strong foundation for its expanding market opportunity". Yet the share price tumbled as much as 12 per cent in after-hours trading on Nasdaq as investors showed their dismay at the management's outlook for the company.

Mr Balsillie admitted that growth would be hit after increased research and development, as wellas sales and marketing, around the launch of its new tablet and the overhaul of its operating system. It could also be hit by supply-chain issues as a result of the earthquake in Japan.

Geoff Blaber, an analyst at CCS Insight, said: "The investors were alarmed about the outlook. It looks like the next quarter will just see more competition as the company goes through a major transition." He added that after Thursday's results: "There is uncertainty, and investors hate uncertainty."

RIM is betting much on the PlayBook. It describes the device as the world's first "professional-grade tablet". When it goes on sale next month it will see the debut of BlackBerry's new top-end operating system, QNX, which will also be rolled out to its higher-end phones released in 2012. "This will be the most significant development for RIM since the launch of the first BlackBerry. Being a no compromise device matters,"Mr Blaber said.

Kris Thompson, an analyst at National Bank Financial, said: "No doubt the company is in a transition period." The question after shifting from a corporate to a consumer device, is whether it can deal with the challenges it faces in 2011.

RIM was founded in 1984 by its current co-chief executive Mike Lazaridis when he was an undergraduate at the University of Waterloo. Mr Balsillie, whose responsibilities include corporate strategy and business development, joined the group six years later. It started making communications hardware and software before introducing its first smartphone in 1999 which it was quickly embraced by the business community. The success over the past decade saw the number of employees soar from just 200 in 1998 to 14,000 last year.

The group's phones became the byword for corporate devices, with businesses especially keen on the simple and secure emailing systems. The real surprise came when the phones became popular with consumers. Mr Blaber said: "The consumer found BlackBerry before BlackBerry found the consumer." It became a huge hit among teenagers, driven by the success of its free instant messaging platform BlackBerry Messenger, known as BBM. "Message heavy users prefer keys, and in that space, BlackBerry dominates," Mr Blaber said.

The phones are still flying off the shelves. The BlackBerry Curve 8520 is constantly in the top three handset sales on a weekly basis in the UK. Yet it is at the lower end of the smartphone market, selling for £140. It is less successful in the high end, where its Torch is sold for £459.99

One source close to a UK operator said there was another problem. While scores of teenagers use the phones, they predominantly use the less lucrative pay-as-you-go deals. When the leave school, he said, increasingly they are moving to Apple and Android phones.

BlackBerry is losing market share, according to figures from Gartner. Sales of the phones have declined from almost a fifth of the market in 2009 to 16 per cent last year, when it was overtaken by Android. The operator source added that BlackBerry's churn rate had rocketed in the past six months. Part of the problem, analysts said, was that BlackBerry did not have a high-end smartphone to challenge the iPhone or the latest Android devices. It tried to enter the market with the release of the Torch last July, and while it has found some success, experts complain that the phone "doesn't know what it wants to be", offering a touch screen and a slide out qwerty keyboard. Mr Blaber said: "There is so much more competition in the high end now than 18 months ago. BlackBerry is having to cut its price more than ever before."

He added: "It has lost share in the US especially. We're yet to see it in Europe, primarily because of its strength in pre-pay. There are fears it is coming, though."

Sales in the US fell for a fifth quarter, the company revealed in its results. The industry is watching intently and all eyes are on RIM's BlackBerry World annual event in May. Mr Balsillie said "your jaw will drop" when the company unveils its new "superphones" and many feel it is crucial time for the company. One industry insider said: "Sales are still good but the future is a little bit hazy. RIM is doing good work but there are definitely challenges it faces."

Picking Blackberries

7210 The first BlackBerry device was a two-way pager. The 5000 phone series were monochrome before RIM introduced the first colour models with the 7200 series.

Curve One of the group's bestselling devices on the market. First released in 2007, it was more geared towards consumers. It was released a year after the launch of another top seller, the BlackBerry Pearl.

PlayBook The Canadian group's answer to the iPad will be released next month. The tablet has a 7-inch display with video calling and says it is built for business. Yet it is entering an increasingly competitive market. Alongside the iPad2, which was released in the UK yesterday, it faces strong rivals running Android software, including the Samsung Glaxy Tab and the Motorola Xoom.

Torch The Torch 9800 was unveiled last year as RIM sought to hit back at Apple and Android at the top end of the smartphone market. One operator said the devices "are selling, but they are heavily subsidised".

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