HP and palmOne Better Watch Out for RIM

I'll confess, for a long time I dismissed Research in Motion's BlackBerry line of cellular-wireless handhelds as a niche product. Sure, I thought, BlackBerries handle email well, but they are never going to be serious competition for Palms or Pocket PCs.

Boy was I wrong.

According to Gartner Dataquest, RIM shipped only slightly fewer handhelds than HP did last quarter. Reportedly, there were roughly 530,000 iPAQs shipped during the April to June period, while RIM shipped 510,000 BlackBerries during that same time.

In fact, it wouldn't surprise me at all if RIM outships HP during the current quarter. While the number of iPAQs shipped each quarter has gone up recently, the number of BlackBerries shipped has gone up even faster.

Increasing BlackBerry shipments aren't the only good news coming out of RIM. It has earned a profit in each of its last four quarters. Last quarter it earned over $55 million, and expects to make even more this quarter.

HP and palmOne Fighting Back

RIM's success hasn't escaped the attention of its competitors.

Palm Inc. made several attempts at creating cellular-wireless handhelds over the years. Neither the Palm VII nor the Tungsten W met with much success.

Only after Palm's merger with Handspring did the new company have a winner on its hands: the palmOne Treo 600. However, while this model has grabbed lots of attention, Gartner Dataquest reports that only about 160,000 Treo 600s were shipped during the second quarter of this year, less than a third the number of BlackBerries that shipped.

There are some who will argue that the Treo 600 shouldn't be compared with the BlackBerry, as the palmOne device is a smartphone, not a wireless handheld. However, the two devices perform roughly the same functions and are fighting over the same target audience, so I think the comparison is valid.

HP's first cellular-wireless handheld is expected to debut next month. The iPAQ h6315 has generated a lot of buzz, and it will be interesting to see how its sales stack up against the BlackBerry line's.

RIM Not Resting on it Laurels

Until now, the BlackBerry line's success has been based on one function: email delivered over cellular-wireless networks.

However, the folks at RIM are totally aware that an increasing number of devices are starting to offer this feature, from the wireless handhelds from palmOne and HP I already mentioned to the boatloads of smartphones that are hitting the market. That's why RIM's developers aren't standing still.

The iPAQ h6300 has received a lot of attention because it will be the first cellular-wireless handheld to also offer built-in Wi-Fi and Bluetooth. RIM has made it clear that future BlackBerry devices will also include Wi-Fi and Bluetooth.

To combat the growing number of smartphones, RIM is working on its own smartphone model. I don't know when this will be available, though.

Hardware vs. Software

Ironically, in the future, the BlackBerry line's biggest competitors will probably also run the BlackBerry service.

The BlackBerry email service has acquired a strong reputation in corporate America for being the best available. RIM is happy to license its software to other companies, and an increasing number of handhelds and smartphones offer it now or will in the future, including ones from palmOne and HP.

It's possible RIM will give up making hardware and become a software-only company someday, but this won't happen anytime soon. Last quarter, 68 percent of its revenues came from selling handhelds, while just 9 percent came from licensing its software.

In the Catbird Seat

It has been clear for a long time that eventually almost all handhelds are going to be able to connect to the Internet over cellular-wireless networks.

This is why RIM is definitely sitting pretty. It is already successful in the cellular-wireless handheld market. This is something the other handheld makers have yet to do.

If RIM has a problem, it's that fact that it has so little presence in the consumer market. The vast majority of BlackBerries are bought for business purposes. If RIM hopes to continue the explosive growth it has enjoyed recently, it is eventually going to have to start adding more features that appeal to consumers, like multimedia.