RIM's falling fortunes put Canadian technology 'ecosystem' at risk

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When Canadian telecom champion Nortel Networks Corp. imploded two years ago, a common refrain in the country's technology industry was: "Well, at least we've still got RIM."

That confidence is shakier now, as Research In Motion Ltd. on Thursday issued a broad warning about its financial outlook. It announced sharply reduced first-quarter revenues, disappointing earnings, a lower forecast for its second quarter - and a plan to cut jobs.

"The implications are potentially dire if RIM does not regain its mojo," tech consultant Carmi Levy said Thursday.

For years, BlackBerry-maker RIM has been the hub of Canada's technology universe, creating jobs, innovation and partnerships with wireless and software companies.

The current slowdown has huge implications for the company and its 17,500 employees, as well as its many shareholders, both personal and institutional. RIM has a heavy influence on the economy of the Kitchener-Waterloo area in Ontario, where it is a major employer, innovator and charitable force.

If the RIM dream dies - or at least withers - it will be an earthquake for the little garage operations and small shops in the industrial parks around the fringes of Waterloo, and throughout the technology zone of Kitchener, Waterloo, Cambridge and Guelph.

"RIM is the centre of the Waterloo technology ecosystem," Mr. Levy says. If RIM loses traction and become a legacy company, rather than an innovation leader, "the ecosystem is at risk," he says.

Co-CEO Jim Balsillie acknowledged the stakes in a conference call Thursday. "The reduction of our head count is an incredibly difficult decision, and Mike [founder Mike Laziridis]and I appreciate the impact of this on our employees, their families and the community."

Waterloo's two universities could also be hit: Waterloo and Wilfrid Laurier gain huge academic and recruiting benefits from the RIM factor. Wilfrid Laurier, for example, is in the process of launching an executive master's degree in technology management, taking the idea from a program it was already developing for rising RIM managers.

And consider the impact on the much-ballyhooed Waterloo lifestyle if it no longer spins out RIM-like entrepreneurs and millionaires. The two RIM leaders have funded in their hometown a global physics research institute and an international governance and public policy think-tank.

It's not that RIM is in its death throes - far from it. It remains a profitable company with a product line that is still revered around the world. But it is a matter of the future ability to spin out new generations of products the world wants.

Rick Powers, a professor at the Rotman School of Management at the University of Toronto, says it is too early to count RIM out. "There's always a risk. But I think where Nortel became a bit complacent, that's not a word that you would use with RIM," he said.

It is also clear that "they're in a war. Innovation is the game."

The company continues to generate new products, he says, and it is hoped that the market will appreciate them. "They'll still be competitive in a very, very competitive market," Prof. Powers said.

However, RIM's warning Thursday confirmed concerns of analysts and tech leaders that rivals such as Apple Inc. are quickly taking market share in its the handheld-device market and cleaning RIM's clock in the critical new tablet market.

Raymond Pirouz, a lecturer in social-media marketing at the Ivey School of Business at University of Western Ontario, said RIM's challenge is not to become a me-too company in the rising tablet market. Apple created an entire new product area with its iPad, and its iTunes system, while RIM was left trying to match it with its PlayBook device.

"They are not innovating beyond what Apple is doing. They are just trying to play catch-up," Mr. Pirouz said.

Prof. Powers said inheriting the mantle of national tech champion from Nortel was almost a burden because it put the company under a microscope. "They are a world brand, and a world company. We don't have a lot of those. ... With that comes a lot of expectations."

But not everyone sees RIM as a technology keystone in the way Nortel once was. Kunal Gupta, chief executive officer of Toronto-based app maker Polar Mobile, remembers growing up in Ottawa, where Nortel was a dominant presence. "There definitely was an ecosystem of companies around Nortel," Mr. Gupta said. "I would not say the same thing about RIM."

He was skeptical of the concept of a national technology champion, saying all Canada has to aim for global success, just as RIM did.

"RIM set an example, they are a global company based in Canada, and there has to be more," Mr. Gupta said. "Canadians have to go global, find bigger markets, whether it's the U.S., the U.K., the Middle East, India, China."

With reports from David Ebner, Jeff Gray and Iain Marlow