RIM earnings prediction lower; time to talk apps?

RIM's Wednesday announcement to investors that it'll reach only the low end of its earning forecast may carry a clue to how the company plans to maneuver its way through the next few months of drama.

The company's fiscal quarter and year end on February 28, so the numbers executives are seeing are not entirely blue-sky figures. The quarter includes not just the December holidays but the first full quarter of results on sales of the Storm, the iPhone-competitive touchscreen phone offered so far only by Verizon Wireless. It was also the first full quarter for sales of the BlackBerry Bold -- carried in the US by AT&T -- and the Pearl Flip (RIM's first clamshell-style phone).

So what does "earnings announcement" mean? While we wait for sales numbers on the smartphone market in general and the newest BlackBerrys in particular, there's plenty of speculation about the high cost of manufacture for the newest handsets, worse-than-expected softening of the overall market, and questionable performance of one of the new crew. (The Storm looks lovely, but a great number of users and reviewers say it's a big of a slug.)

Something else RIM revealed in its Wednesday announcement is telling, and may even indicate the lines along which RIM's thinking in the privacy of its Canadian headquarters. Earnings may be down, but subscriber numbers are up, definitely up. The company says it will have added around 3.5 million new subscribers by quarter's end, up about 17% from the prior prediction of 2.9 million.

The new handsets aren't cheap to manufacture, but then again subscribers aren't cheap to get either. And now, with all of its major handset offerings shipped (the latest Curves were released in January), might it be that RIM's got other things on its mind?

Don't worry about Wednesday's adjustment, says Carmi Levy, an independent tech analyst and stalwart Betanews commentator; RIM's still highly profitable, still growing its base, still strongly competitive -- and still alive after years of hearing how various competitors would eat its lunch. Missed expectations (or barely reached ones) would affect the company for more than a week or two.

Instead, he says, RIM now needs to turn its attention from handset developments to software developments. "The next major milestone for RIM, and likely the most important thing it can do over the next 12 months," he says, "is getting its app store launched and building the developer/distribution ecosystem around it."

In other words, he says, increasingly the smartphone battle won't be about the phones at all.

"Once the devices are slim, light and functional enough -- and one can argue that the iPhone and Storm are pretty much there, as you can't get much more functional than a slab of glass -- consumers and enterprises will shift their focus to the application environment. Integration, user experience, and number and usability of available applications will first join, then exceed, hardware-driven factors as reasons to buy into a particular vendor or platform."

RIM's promised an apps store for some time, and in fact has targeted March '09 as the launch date, but there's nothing official available yet. In contrast, the iPhone apps store has over 20,000 apps on its "shelves," with around half a billion sold. "The clock is ticking," Levy says, but that's RIM's way. "Compared to Apple, RIM is a bit more conservative when launching into a new market. They like to engineer things -- both hardware and services -- and since an apps store is new to them, they needed to get the relationships in place as well as actually build out the online infrastructure and tools."

A curated apps store (as opposed to the get-random-stuff-from-random-third-party-developers approach) could help RIM make its case to users and potential users, as Apple's apps store has for its clientele. Price will make a big difference; Apple's "freemium" model, which offers a mix of paid and free choices, seems to have successfully defined the model, and Levy expects that RIM's studying Apple's successes and failures before jumping in.

Stakes are high, he emphasizes. "If RIM can get some of those iPhone diehards, Palm and Nokia orphans, and desktop refugees over to its platform, it'll be able to build some early momentum and also tell as compelling a story for the BlackBerry as Apple has been telling for the iPhone. I have no doubt that we're in for a hell of a fight."