There are now less than two weeks remaining before struggling smartphone pioneer Research in Motion (RIMM) takes the wraps off its new BB10 operating system. Smartphones running the new OS, which was developed from the QNX operating system, were initially supposed to launch in the first quarter of 2012. The legacy BlackBerry OS has become increasingly uncompetitive since Apple (NASDAQ:AAPL) launched the iPhone in 2007, as it cannot handle web traffic and apps nearly as well as iOS and Android. The new OS will provide a much smoother experience, while still offering top-notch security, access to BlackBerry Messenger, physical QWERTY keyboards (optional), and other standard BlackBerry features.
As I have discussed previously, I think that many developed-world BlackBerry users have been waiting for the BB10 release to upgrade their phones. This should create strong replacement demand in the first year after BB10's release. However, for RIM to survive long term, it will need to appeal to a new user base by offering superior functionality compared to other handset vendors. The app ecosystem is likely to remain far behind Apple and Android for the foreseeable future, so BB10 will have to differentiate itself in other ways.
One feature that seems particularly promising is the Blackberry Hub. The BlackBerry Hub is a sort of unified message center that will provide access to e-mail, messages (standard text messages and BBM), and updates from social networking sites. It is particularly significant that RIM was able to get Facebook (NASDAQ:FB), LinkedIn (NYSE:LNKD) and Twitter signed up as partners. These are probably the three most important social networking sites today, and they clearly think the new BB10 OS is promising enough to give it a shot. While the new BlackBerry OS is still missing critical apps like Skype, the integration of various social networking apps is clearly a step in the right direction. Moreover, the Hub will allow a more seamless multi-tasking experience; with two swipes, users will be able to check their messages while leaving other apps running. With the integration of e-mail, messaging, and social networking, BlackBerry Hub could attract a new set of users to the BlackBerry platform.
The other positive data point is that RIM is trying to build on its reputation for having the best security among mobile devices with new features. For instance, the company recently announced that Visa (NYSE:V) has approved RIM's "Secure Element Manager," a mobile payment system. While many devices running Google's (NASDAQ:GOOG) Android OS already feature NFC (near field communications) technology, mobile payments have not really gone mainstream yet. (A case in point is that Apple declined to include NFC on the recently released iPhone 5.) Part of the problem is probably user wariness about credit card fraud/identity theft. There have been numerous reports in recent years about Android security flaws. RIM's reputation for security could make users much more willing to take advantage of NFC capabilities for mobile payments.
Similarly, the new BB10 OS will include a feature called "BlackBerry Balance" which allows the creation of separate work and personal profiles. The work profile can be kept secure and under the employer's control, while still allowing users to download and use other apps with the personal profile. These capabilities may help RIM to bridge the transition from corporate-issued smartphones to BYOD (bring your own device). That said, I would expect BlackBerry Balance to appeal to a fairly small segment of smartphone users (most of whom are already BlackBerry loyalists). This feature seems aimed primarily at keeping core BlackBerry users within the fold.
RIM has made it through the transition period to the new BB10 OS in surprisingly good shape. FY13 (which ends March 2) could have been a disaster, but cost reductions and inventory draw-downs have allowed RIM to increase its cash and investments balance to nearly $3 billion as of the end of Q3. While there will be a significant cash draw in Q4 as BB10 devices enter production and marketing ramps up, RIM does not face any real liquidity concerns.
As a result, RIM's success now hinges solely on consumer adoption of the new devices. The superior app ecosystems of iOS and Android put RIM at a significant disadvantage, as does the company's current stodgy image. However, I believe that the innovative BlackBerry Hub, as well as the early adoption of secure NFC capabilities, could attract some new customers to the brand. To be clear, RIM will remain a distant third in the smartphone wars behind iOS and Android for the foreseeable future. But with the company still trading near book value, shares continue to have significant upside based on the possibility that new devices could propel RIM back to 8%-10% market share (which I estimate would be sufficient to make the business viable).