RIM Seeks To Regain Edge As Competitors Loom

A carpeted warehouse in Waterloo, Ontario, where workers in blue lab coats assemble BlackBerrys is ratcheting up capacity from a hefty 2 million devices per year to 2.5 million.

A rich pool of engineering talent, students at the adjoining University of Waterloo - sometimes called Canada's MIT - traipse across RIM's parking lot on their way to classes.

But the executives, Mike Lazaridis and Jim Balsillie, may not be seeing clearly enough beyond their realm. Some analysts say a tidal wave of competition threatens to stomp the BlackBerry.

The skeptics believe that within a year or so, RIM will be struggling to keep up with big-time device makers like Nokia, Dell and Palm that crave bigger chunks of the business market RIM has all but dominated.

In such a scenario, RIM might have to slow those BlackBerry assembly lines and focus instead on carrying e-mail to other devices, a potentially painful comedown.

"The bottom line on RIM is: Long term, they're toast," said Meta Group analyst Jack Gold. "Everyone falls off a cliff at some point if they don't see the cliff coming."

RIM executives bristle at the suggestion that competition will diminish the company's position. They call that analysis oversimplified.

Investors certainly hope so. The company has lost $110 million the last four quarters, but with revenue expected to leap 73 percent in fiscal 2004, RIM's stock price has tripled this year.

"We're not some dot-commers that just started," said Lazaridis, who founded RIM in 1984 while attending the University of Waterloo and is now the school's chancellor. "We know how to run a business."

But the company that began primarily as a pager provider has myriad challenges. One is a patent lawsuit from NTP of Arlington, Va., which claims it owns a radio communications technology the BlackBerrys use.

In August, a U.S. judge ordered RIM to pay $54 million in damages and stop selling BlackBerrys, though he stayed that decision while RIM appeals. Fears about the case prompted Nokia to postpone plans to have RIM's e-mail service in one model of phones in the United States.

As daunting as the August verdict sounds, analysts say it probably doesn't represent a major long-term threat because NTP likely would rather collect royalties from RIM than put it out of business.

Instead, RIM and its 2,300 employees probably have more to fear from changes roiling their market.

The genius of the BlackBerry, which debuted in 1999 after RIM engineers originally developed it for their own internal use, was that it was small yet had a full QWERTY keypad for thumb typing and could automatically send and receive e-mail.

That simple formula became a huge hit with on-the-go information addicts - some called it the 'CrackBerry' - especially on Wall Street, in courthouses and the halls of government, including the U.S. Congress. Corporate technology managers appreciated RIM's secure and stable network.

Over the years, the BlackBerry got cell phone and Web functions and color screens. And its new models automatically synchronize with users' e-mail networks instead of having to be put into a cradle attached to a PC.

RIM counts more than 700,000 users in 14,000 companies - mostly in North America _ but it no longer sells directly to customers. Instead, wireless carriers sell BlackBerrys as part of their phone fleet. For example, Nextel Communications sells a $350 BlackBerry with walkie-talkie features.

Balsillie contends that the wireless carriers' marketing power shields RIM from would-be rivals.

"It's not me versus the big gorilla," he said. "It's the big gorilla versus the carriers."

But a wireless customer could increasingly clamor for something else to keep out-of-the-office employees connected to e-mail: namely, the cell phones and personal digital assistants that are melding into powerful 'smart phones' with several messaging functions. The trend led Palm to acquire Handspring, maker of the Treo smart phones, this year.

As those devices proliferate, BlackBerrys will be competing more directly with big manufacturers that could slash costs _ and RIM's profit margins.

In the next month or so, Dell will begin selling a Blackberry-like messaging device powered by Good Technology, which funnels e-mail to Handspring devices and others - even BlackBerrys. (RIM and Good are suing each other over patent issues.)

Dell, which also resells BlackBerrys to its customers, is working with Good to develop a next-generation messaging device (though Dell spokeswoman Anne Camden said Dell will maintain its partnership with RIM because its products remain popular).

Another RIM rival, Visto, has deals to carry e-mail to devices made by Palm, Motorola, Sony and Kyocera. Visto CEO Brian Bogosian hopes to beat RIM by supporting not only e-mail, but also cell phone-style text messaging, and at a lower cost.

"I think we can get to millions of users much faster than they will," he said. "They're going to end up becoming roadkill."

Meta Group's Gold says Good is better than RIM at relaying users' calendar and contact information. Then again, Good and Visto are options only for companies with servers running Microsoft's Exchange software, while RIM also connects to IBM Corp.'s Lotus e-mail platform. Balsillie calls that a huge selling point in Microsoft-resistant overseas markets.

However, another mobile e-mail competitor touting lower costs than RIM, Seven Networks Inc., connects low-end users to Lotus and pledges to do it for all customers within months.

RIM critics say this landscape parallels the competitive forces that eventually hurt other high-end technology companies, such as Apple Computer Inc. and Sun Microsystems Inc., whose markets became standardized and commoditized.

RIM's leaders reject that as a cautionary tale. They say there's still room for wireless data companies to distinguish themselves with superior technology. For example, Lazaridis says RIM is best at making phone and messaging functions work together without any of them losing strength.

Even so, RIM is trying to get its e-mail engine into other manufacturers' devices. In fact, it has developed e-mail software for digital assistants running Microsoft's Pocket PC operating system, which account for 28 percent of the market. RIM hasn't announced a release date.

In the meantime, RIM must win over more customers like Justin Hectus, head of technology for Keesal, Young & Logan, a California-based law firm that used to have 30 BlackBerrys.

Its lawyers now use 100 Good-powered devices. Hectus said Good offered a more intuitive user interface and less set-up time.

"It's going to be pretty tough," he said, "for BlackBerry to catch up."

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