"I couldn't feel better," Jim Balsillie chirped on June 24. The co-CEO of Research In Motion was speaking to analysts after the company reported quarterly sales and earnings sharply higher than those in the same quarter a year earlier. But RIM's share price plunged by more than 10% the next day, wiping out about $3.5 billion of the company's stock market value.
The sell-off looks perplexing on the surface. RIM shipped more than 11 million BlackBerrys in the quarter ended May 29. It added almost five million users, to bring its total user base to 46 million. It produced $1.1 billion (U.S.) in cash flow and bought back $400 million (U.S.) worth of its stock. Despite all of these positive developments, the share price still looked relatively cheap at 10 times RIM's forecast earnings for this year. That's typically a multiple for mature companies that have stopped growing.
So why did investors race to the exits? Because they're losing faith that RIM can fend off the competition in the smart phone market-especially, but not only, from Apple. And they're right.
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By coincidence, Apple launched a new iPhone on June 24. The company had already presold 600,000 of them-in one day. For its quarter ended June 26, Apple sold a total of 8.4 million phones. That was three million fewer than RIM, but iPhone's growth rate was higher. Another telling statistic: Apple collected $5.3 billion (U.S.) in revenue for those phones, compared to the $4.2 billion (U.S.) RIM got for selling more phones. Technology is a scale business. Spending on research and development is the most important investment. The more profits you earn from a new generation of your product, the more ammunition you have for future growth.
But there's more to it than R&D. There's also brand image and marketing clout. The chip market is a good example. Advanced Micro Devices Inc., the No. 2 chip maker, is unlikely to ever surpass Intel for two reasons: Intel sells more chips at higher prices (and can spend more on R&D), and its hugely successful "Intel Inside" campaign made it a household name.
Yes, BlackBerry is a decent brand, particularly among business users. But Apple is the sexiest tech brand in the world, and BlackBerry will never catch up.
The worst news, however, is that RIM appears to be losing the technological battle, too. You probably know people who have used both a BlackBerry and an iPhone. Odds are they prefer the latter. One reason is ease of use and reliability. Another is the more than 200,000 apps available for iPhone-far more than are available for BlackBerry.
RIM is launching a new operating system and a new smart phone with a touch-screen interface. But Apple has been developing and launching leading-edge operating systems for more than 30 years. Even with advantages like push e-mail, a solid-state keyboard and instant messaging, RIM is having trouble competing.
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The most damning indictment, however, is one of corporate culture. RIM basically created the smart phone market in the 1990s. Yet it has taken Apple just a few years to claw out an enormous share of it. RIM is now playing catch-up, responding to Apple's innovations instead of leading.
To succeed in technology, you have to attract the brightest minds. Where do you think they want to work today? RIM is looking more and more like Microsoft-a company that coasts along but lacks the innovation needed to keep growing.
Folks, I'm telling you that the race between iPhone and BlackBerry is over, and Apple is the winner.