Research in Motion Seeking Partners for New BlackBerry 10 OS

The change is even a departure from a preliminary strategy that new CEO Thorston Heins laid out earlier this year when he voiced mild interest in partnerships and licensing deals. Heins replaced RIM Co-CEOs Jim Balsillie, who resigned from the company’s board last week, and Mike Lazaridis and has since shaken up the executive ranks. Software Chief Technology Officer David Yach, a 14-year veteran, retired, and Global Operations Chief Operating Officer Jim Rowan is leaving the company after a four-year run. Other executives are also leaving the company, analysts said.

"The future of business of RIM is to have a unique, differentiated, compelling value-creating proposition on BlackBerry 10 and there will be partnerships involved,” Heins, who was previously RIM’s chief operating officer for product and sales, said during a conference call with analysts. “I want this company to focus on its core strength, and the company needs to learn to partner, needs to sign up with partners, needs to engage."

BlackBerry 10, which is based on the QNX software RIM acquired from Harman International, will likely appear in LTE-based BlackBerry smartphones due later this year, but could also hit the entry-level through partnerships, especially in emerging markets, Heins said. RIM had been expected to spread the QNX software across all its products by early this year and was to add LTE-based versions of its PlayBook tablet last fall (CED April 18 p1). RIM has developed the first working software for BlackBerry 10 and expects to have it in prototype devices at the BlackBerry World developers conference in May, Heins said. BlackBerry will start cellular carrier testing in the summer, he said. BlackBerry 10 also will extend beyond smartphones and tablets and creates a platform “from which we can really reach out in the different market segments,” said Heins, noting that it may take 1-2 years to meet that goal.

"Where I want to drive RIM devices is to be an aspirational high-end object of desire with the best functionality for communications purposes and for people who need to stay ahead of the game and need productivity to achieve,” Heins said.

But Heins also appeared to waiver on RIM’s commitment to continuing in the consumer market with its own branded product. While RIM will drive the BlackBerry 10 business in the enterprise segment, it may shift to partners for the consumer segment, he said. “On the consumer side, we will partner,” Heins said. “We will have to have those consumer … specs on a BlackBerry 10. There’s no doubt about it. Do I have to do this myself? Probably not. We're seeking strong partnerships that allow us to have the build your own device offering, but that doesn’t mean we have to do it all ourselves.” Whether the strong partnerships could eventually translate in a sale of RIM isn’t clear, analysts said.

Retailers we polled weren’t surprised by RIM’s change of heart, given that BlackBerry is being outsold in the consumer market by Google Android and Apple iOS devices. BlackBerry smartphone shipments declined to 11.1 million in Q4 from 13.6 million the previous quarter. RIM added 3 million net new subscribers in Q4, short of analyst forecasts for 4 million. RIM ended the quarter with 77 million customers, analysts said. It also shipped 500,000 QNX-based PlayBook tablets in Q4 and 1.3 million in the fiscal year ended March 3, Chief Financial Officer Brian Bidulka said. That compares to Apple, which sold 3 million iPad 3 tablets the first weekend of availability in March. “We sell BlackBerrys, but they can’t keep up Google Android and Apple,” BrandsMart President Michael Perlman said.

RIM will “aggressively” promote its existing inventory of BlackBerry 7 OS-based smartphones with programs offering upgrades for customers with older BlackBerry models and those with feature phones. RIM also will ship new BlackBerry 7-based smartphones in the coming weeks, replacing those that left RIM saddled with inventory in Q4, company officials said. RIM took a $267 million pre-tax charge in Q4 for excess inventory as “certain models of the BlackBerry 7 lineup are not selling as well as anticipated,” Bidulka said. RIM didn’t disclose which BlackBerry 7 devices were the slow-sellers and a spokeswoman declined to comment. But RIM introduced the line last summer with the BlackBerry Bold 9900 and 9930 and Torch 9810, 9850 and 9860. The Bold 9900 is “continuing to gain traction,” Bidulka said.

In light of the excess inventory, RIM will revamp its manufacturing strategy, possibly focusing on fewer suppliers, company executives said. A RIM spokeswoman declined to comment on how many suppliers the company uses. Among RIM’s manufacturers is Flextronics. RIM also will “streamline” sales, marketing and product marketing to ensure that all are “structured to support the most profitable business opportunities,” Heins said. RIM “sourcing teams” also will work with product designers in the early stages of development to “reduce costs” and will implement more processes to improve yields, warranty return rates and cut manufacturing expenses, Bidulka said.

The broad restructuring follows RIM swinging to a $125 million Q4 net loss from a $934 million profit a year earlier as revenue fell to $4.19 billion from $5.55 billion. The loss was partly tied to RIM’s taking a $355 million pre-tax goodwill impairment charge. Hardware sales in Q4 plunged to $2.9 billion from $4.1 billion the previous quarter, accounting for 68 percent of sales. Service revenue rose 12 percent from the previous quarter to $1.1 billion, the company said. Gross margin slipped to 33.4 percent from 44.2 percent a year earlier, but was up from 27.3 percent in Q3. Inventory soared to $1 billion from $618 million a year earlier. RIM’s Q1 revenue is expected to further decline from Q4, company officials said. Analysts previously projected Q1 revenue of $4.26 billion.