Meteor

The BlackBerry is in for a bruising

May 12, 2008: 7:00 AM ET

By Scott Moritz

Research in Motion (RIMM) takes the stage this week to preach to a gathering of its faithful in Florida during the Canadian company's annual Wireless Enterprise Symposium. But just as the BlackBerry maker seems to be reaching the height of success, its flock may well start to stray.

Not only will followers be tempted by new devices like Apple's (AAPL) forthcoming business-friendly iPhone, other sect members will face excommunication as cost-cutting initiatives sweep through the office ranks.

For now, however, it's party time for RIM. A few highlights ahead for the week in Orlando include a performance by John Mayer, and even hotter, the unveiling of the company's first 3G phone, the BlackBerry Bold.

These have been very good times for RIM. European sales have taken off as has the stock, up 81% over the past year, and hovering close to a one year high.

It's been a good run, but now come a new set of threats.The new BlackBerry Bold

Due to delays first reported by Fortune, the dazzling BlackBerry Bold will not be available in the United States until as late as August. This means Apple will beat RIM to the market in June with its 3G iPhone.

The hotly anticipated, speedier successor to the original iPhone will also have a deep price cut thanks to a planned subsidy by AT&T (T). The new iPhone is also designed for the sweetspot in smart phones - BlackBerry's business e-mail niche. Apple says it will license software to allow the iPhone to work with Microsoft's (MSFT) Exchange platform for office e-mail as well as calendar and contact syncing.

And according to Cisco (CSCO), the iPhone business plan seems to be marching along. On an earnings call with analysts last week, Cisco chief John Chambers said the new iPhone has some of Cisco's office network security system loaded on. "The upcoming software version 2 for the iPhone incorporates Cisco's VPN technology," Chambers said.

Having the networking giant involved with Apple's business play certainly can't be comforting to RIM.

Another potentially unsettling development is Nokia's (NOK) upcoming plan to offer a series of BlackBerry lookalikes through AT&T. The new phones, starting with the E71, will also work with Microsoft Exchange and use a Nokia managed e-mail server, a delivery and security system akin to the BlackBerry approach, says one source familiar with the plan.

BlackBerry fans have seen threats like this before. Good Technology had a popular business e-mail system favored by Palm (PALM) Treo users. Motorola (MOT) acquired Good in 2006, and so far has failed to make much added headway against RIM. If anything, RIM's one-trick killer-app ability to deliver instant, secure e-mail has been extended beyond professionals to consumers attracted by the sleeker phone designs, GPS navigation, music players and cameras.

On Monday, RIM announced a plan to start a $150 million venture capital fund to spur development of applications on the BlackBerry platform. The move - made along with RBC and Thomson Reuters - is similar to the $100 million venture effort that Kleiner Perkins Caufield & Byers announced in March to develop software for Apple's iPhone.

A good part of RIM's success is reflected in the stock's rise, which has so far defied the slowing economy and sluggish corporate information technology spending. But the new product delay coupled with arrival of Apple and Nokia's BlackBerry killers, may challenge RIM's perennial winner status.

To be sure, a lot can be made of BlackBerry's huge sales opportunities overseas where RIM has a very good chance of repeating the business e-mail success it had in the United States. And some RIM analysts see some big promise in the a crop of new BlackBerries coming out in the coming months.

TD Newcrest analyst Chris Umiastowski points to two phones in the works that should help restart the BlackBerry sales cycle. One is a flip or clamshell styled phone code-named KickStart that will launch with T-Mobile this fall, Umiastowski wrote in a report. And the long awaited touchscreen answer to the iPhone, which is apparently dubbed Storm, is due out in late fall, he notes.

But there is a different sort of storm on the horizon, in the form of spending pressure. It used to be common practice amoung businesses to hand out BlackBerries to an entire staff of go-getters. But the devices are not cheap, about $200 and up, and the monthly service contracts, and revenue sharing payment to RIM are large numbers on the business expense list. Some companies looking to attack costs have targeted the BlackBerry line item.

Here's one example: Honeywell (HON) has recently taken its belt tightening efforts in a notch and told employees in some units to prepare to turn in their BlackBerries.

Honeywell, an aerospace and electronics giant, isn't exactly under the gun in terms of immediate economic pressure - the company increased it profits by 22% last quarter on 10% sales growth. The point being, if the strong players are looking for places to cut the fat, one can imagine how the budget police in industries like banking, airlines, autos might be viewing BlackBerries these days.

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