BlackBerry's Bitter Truths

BlackBerry is an undeniably cool device; if there ever was a company with a product tailored for the North American market, it's Research in Motion (RIMM).

Alas, BlackBerry is a niche domestic product whose niche is getting smaller, while the stock is valued as if growth is accelerating and international markets are just about to open up. Is this deja vu or what? A company serving mobile-data solutions on a proprietary platform, concentrating on the U.S. market but priced as if it were an international success ... isn't this the same old Nextel (NXTL)/Palm(PALM) whine in a new bottle? What's the point?

A look at the data shows that all the meaningful indicators at RIM are pointing downward:

• According to DataQuest, RIM's share of the American personal digital assistant market slipped to 4.1% during the second quarter from 4.6% in the first quarter.

• During the IT boom, a garden full of proprietary platforms bloomed. During a bust, the smallest and weakest get weeded out, no matter how strong their exotic niche appeal may be. Financing is now nearly impossible to get, and RIM's operational loss widened during the last quarter.

• RIM defenders note that BlackBerry is a corporate product, not a consumer gadget. But corporate IT budgets are the ones under the most savage attack; consumer spending has held up far better.

• RIM's international expansion now hinges on its partnership with Cellnet, a major British mobile operator that seems unlikely to make a BlackBerry launch a top priority. European and Asian consumers have already abandoned paging devices; whatever RIM may claim, BlackBerry is seen as a two-way pager by most consumers. Changing that preconception would demand a heavy and expensive advertising blitz.

Ultimately, the fate of RIM may hinge on whether the world plunges into a global recession next winter. That in turn hinges on whether U.S. consumers cool their spending. According to some recent statistics, median family income in places like New York barely budged during the '90s. According to a new Ernst & Young survey, 65% of U.S. college students expect to become millionaires.

So I'm developing my very own theory about U.S. consumers -- most of them are delusional. They were conditioned by '90s media excesses to anticipate strong wealth growth -- that's why they have kept spending even though the boom passed most of them by. Now the harsh reality is slowly starting to dawn.

Sound far-fetched? I doubt it's possible to evaluate mobile-telecom companies purely on their own merits anymore -- not if the world economy is about to do something that happens only twice a century or so. There were dozens of car manufacturers in the U.S. during the late '20s -- many of them possessing quirky appeal and nifty special features. In the end, Ford, GM and Chrysler endured -- little else.

Understandably, many investors want to bet on a recovery scenario, but the best place for risk-taking in the mobile sector is probably the battered software vendors -- not hardware plays that are far less likely to become acquisition targets.

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