HTC’s Threat To RIM May Lessen

HTC, the Taiwan based smartphone company, posted extraordinary earnings for its fiscal second quarter. Earnings more than doubled to $608 million, exceeding most analysts forecasts. The firm said much of its success was based on sales of its Desire HD, Sensation and Thunderbolt smartphones, all of which are based on the Google (NASDAQ: GOOG) Android OS.

HTC shipped 11 million phones in the quarter, and said it expects both shipments and earnings to improve in the current quarter.

The growth rate must remind holders of shares of Research-In-Motion (NASDAQ: RIMM) of that firm’s earnings trajectory just two years ago. The fact that another smartphone company can double in size year-over-year only highlights RIM’s current situation as a failure in the industry. RIM shipped 14 million handsets in the last quarter, but its growth rate is nowhere near HTC’s

It is easy to say that RIM stayed with its proprietary operating system too long. It should have migrated to Android the way that Motorola and Samsung did. But the Blackberry OS is complex. It is part of a closed systems that includes Blackberry servers. This closed and proprietary system was attractive to IT managers who wanted a safe and secure environment for messages sent to and from the wireless devices of their employees. That is still the case for many companies today, which may be the reason RIM’s sales have not fallen apart completely.

RIM may have a chance to reverse its fortunes, but not because of how it can change its products in the short-term. Wireless system security has become a growing concern just as cloud computing security has. It may well be that open systems like Android and the Apple (NASDAQ: AAPL) operating software can be more easily hacked because they are not tethered to servers that are part of a secure system like the one RIM created years ago.

RIM may get lucky. The world of insecure computers and portable devices may drive customers back to its legacy platform. The system is old, but it is reliable.

Douglas A. McIntyre