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Can RIM serve up an encore performance?

Research In Motion has been living large for much of the past year. But co-CEO Jim Balsillie must navigate through a corporate spending slowdown as the company engineers a tricky transition to 2.5G networks.

Through most of this year, Research In Motion had steered clear of the consumer price war that bedeviled Palm and Handspring, making it one of Wall Street's favorite picks. But the company is now being pinched by a significant slowdown in corporate technology spending that's been exacerbated by the Sept. 11 suicide bombings.


Jim Basillie, RIM co-CEO and chairman, isn't worried about competition from other wireless companies, as "doing wireless well" isn't easy. (5:59)

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At the same time, RIM is in the midst of a difficult transition, as it seeks to move its signature BlackBerry e-mail pagers onto so-called 2.5G networks that are capable of faster, always-on data access. Most of those networks, though, are being delayed as the telecommunications industry slogs through a massive slowdown. Meanwhile, tough times have also hit two of RIM's key current partners: Aether Systems, which sells BlackBerries to corporate customers, and Motient, which both sells the BlackBerry and operates one of the two networks on which the device operates.

Last week, shortly after lowering his outlook for the rest of this year and next year, RIM co-Chief Executive Jim Balsillie talked with CNET News.com about these challenges, the outlook for RIM and the competitive landscape.

Q: Given recent events, what are you expecting in terms of corporate spending for the rest of the year?
A: We met guidance for this past quarter, which was 88 percent growth over the same quarter last year. So we really worked very hard and achieved expectations for the quarter that we reported on. The one factor that was an adjustment was we provisioned for the cost of receivables and surplus inventory for Motient as they suspended interest payments.

The other thing we did going forward is we guided more conservatively...For next year (we said we expect) roughly 50 percent growth, which is lower RIM is in a transition time. Both as we continue to service our existing customers--some of them are experiencing financial problems--and as we transition to new networks. than we guided before. (There are) really two basic factors. The next-generation networks are going to be a little later, and it's a tougher macroeconomic environment, and we have to factor that into expectations.

The 2.5G networks are rolling out later than expected and you're seeing troubles from your existing resellers--folks like Motient and Aether. Does that mean there's a kind of in-between time where it's a bit rough for you?
I would say there is a transition time...both as we continue to service our existing customers--some of them are experiencing financial problems--and (as) we transition to new networks. However, that being said, we are expecting long-term sales with our existing partners, certainly with Cingular, who did extremely well during the crises and tragic (events) of Sept. 11. And, current financial restructuring aside for Motient, it's still a very valuable and viable network that has a large customer base that enjoys the network, and we see it as continuing to operate. In terms of accelerating our growth trajectory, we certainly were factoring in a certain timing for the GPRS networks and a certain macroeconomic environment. As those things have adjusted--not favorably--we adjusted our growth downward to a more conservative scenario to reflect the environment we are within.

How much further out is GPRS looking than you initially thought?
It depends on the different carrier, but most of them are taking another three to four to five months to get their networks ready...BT CellNet is really doing very well. They launched in September, and we met that timeline...Some of them in North America had talked about being ready in midsummer or late summer...Those have been pushed out. Some haven't announced the dates, but we know they will be this fall or in the wintertime.

More people have announced their intention to be somewhere in the space you guys play, a couple of start-ups, Danger and Good. In addition, although Palm pushed out its launch a bit, both Palm and Handspring appear to be trying to pick up on some things that you have had success with. How do you see the competitive landscape shaping up compared with several months ago?
I think it's changed a lot, because I think in this environment hype gets a lot less I think the most exciting thing going on at RIM right now is the fact that we're shipping 2.5G products. traction than it did three months ago. What we've seen is you are hearing less and less and less about these press release concepts. Companies are starting to realize it takes a lot of resources and a lot of focus to make these products. Our GPRS product is a sixth-generation packet radio...We've been working on our products and wireless data since 1988...We've seen a real quieting of the hype from things like organizer companies and start-ups.

With the earnings release, did you announce any new carrier relationships? How important are carriers as a sales channel for you going forward?
We did not announce any new carrier channels, but we certainly talked about our ongoing carrier business development activities in Asia, North America and Europe. It's a broad number of carriers. It's proceeding very well. We're very committed and very excited about it.

With regard to Motient, I know you said that you don't anticipate their network going away, but do you guys have a Plan B if it does go away, to be able shift those customers to Cingular's network?
Absolutely. We just think it would be profoundly unwise for Motient to do that and profoundly unwise for their financial stakeholders, but if they decide to (shut down the network), we are in no way going to leave our customers behind--that you can be assured of.

What's the best thing happening at RIM these days?
I think the most exciting thing going on at RIM right now is the fact we are shipping 2.5G products; the fact that they are Java 2 Micro Edition-based, so it's a full J2ME BlackBerry on 2.5G; and that our sales continue to grow exponentially into the enterprises.

How hard has it been to close sales since Sept. 11?
There are still sales, no question. One of the greatest success areas has been the U.S. government. All of the Congressmen now carry BlackBerries. It was pretty high profile, the success of BlackBerry and how it performed in the Pentagon during the recent tragedies. I will say, in the corporate environment, the purse strings are tightened. Companies are much more careful on what they spend; that's the reality we're within and we focus on it.