Two of RIM's resellers hurting

Two companies that resell the BlackBerry e-mail pager are cutting jobs, but analysts say the layoffs will inflict only short-term pain on Research In Motion.

3 min read
Two BlackBerry resellers are cutting jobs--moves that may hurt Research In Motion but only in the short term, analysts say.

Reston, Va.-based Motient, which sells the devices and operates one of the networks that RIM's BlackBerry e-mail pagers operate on, said Monday it will cut 25 percent of its workers as part of an effort to reach a break-even cash flow by mid-2002. And Owings Mills, Md.-based Aether Systems, which resells the BlackBerry to corporate customers, has also notified its workers of plans to cut 280 jobs, or roughly 25 percent of its staff.

Both Motient and Aether have been important to RIM in the past, but RIM has been moving more toward a model in which large wireless carriers, such as Britain's BT Cellnet, are responsible for selling its devices.

"The transition to cellular carriers can't come fast enough for RIM," U.S. Bancorp Piper Jaffray analyst Bill Crawford said Tuesday. "There is a time frame before that kicks in, and its smaller channel partners are experiencing weakness."

Although Canada's RIM has been faring better this year than consumer-oriented handheld makers Palm and Handspring, analysts say they expect to cut future earnings estimates for RIM after it reports earnings Wednesday.

"RIM is the leading (handheld) company and a well-run company," Crawford said. But "even leading, well-run companies can't escape what's going on" in the economy.

Crawford said he expects that RIM will be able to match his earnings estimate of 4 cents per share and revenue target of $83 million for its second fiscal quarter that ended Sept. 1. Still, he expects to cut his earlier prediction that RIM could generate revenue of $93 million in the current quarter that runs through November.

However, the weaker outlook is more due to a general slowing in corporate tech spending than to the specific problems at Aether and Motient.

"Most of the Street has already discounted the reseller channel in general," said Scott Miller, an analyst at C.E. Unterberg Towbin. "We continue to feel it's all about the transition to a carrier-centric model."

For his part, Crawford said he anticipates no new shipments from RIM to Aether in his 2002 forecast for RIM.

An Aether representative, who confirmed its planned job cuts to CNET News.com, attributed the across-the-board job reductions to the slowdown in the wireless market and to Aether's need to digest a number of recent acquisitions.

"We were very acquisitive," the representative said. "In 2000, we bought eight companies."

However, there is a somewhat greater risk to RIM from the woes at Motient, given that it is also the carrier on which an estimated 15 percent of BlackBerry pagers operate. Should Motient's cash concerns intensify, analysts say, there is the chance the network could shut down. At the very least, that would cause a disruption because BlackBerry users would have to switch to the Cingular Wireless network, on which the majority of BlackBerry devices run.

"Anytime there is a problem with a channel partner, I don't think it can be seen as a positive," Crawford said.

The key elements that Crawford will be watching for Wednesday are what RIM says about its efforts to secure new relationships with wireless carriers and any delays it expects as carriers slow their plans to move to next-generation networks that offer the always-on connections the BlackBerry needs, such as GPRS (General Packet Radio Service).

"That is the future of RIM," he said.

Even with positive news on those fronts, new competition is looming for RIM.

When corporate spending does pick up, RIM faces potential challenges from start-ups such as Good Technology and Danger Research.

IDC analyst Alex Slawsby said Good and Danger "both clearly have their crosshairs set on RIM."

Handspring has also announced a deal with Aether to resell its products, likely including its forthcoming wireless devices. Meanwhile, Palm has a long-awaited device that promises RIM-like features such as always-on access to corporate e-mail, although that device has been delayed until early next year.