Daily Archives: April 1, 2010

3Com Concerned About China’s “Indigenous Innovation”

In a DC Velocity article in which a senior executive of the U.S.-China Business Council says conditions for foreign companies doing business in China have reached a new low, a quote from a 3Com spokesperson makes for interesting reading.

3Com is a networking vendor that manufactures nearly all its products in China. Most of its design and development is done there, too. As such, it’s notable that 3Com should have concerns about China’s “indigenous innovation” polices, which are intended to boost the research, development, and manufacture of Chinese companies — relative to foreign competitors — in computing, software, telecommunications, and cleantech.

One might think that 3Com, essentially a Chinese company with an American moniker, wouldn’t have an objection to China’s industrial policy. Nonetheless, 3Com is concerned, as the following paragraph from the DC Velocity makes clear:

Not only does that policy erect unfair trade barriers, it also puts intellectual property at risk, said Misty Rutter, trade compliance director for 3Com, a telecom hardware maker that manufactures almost exclusively in China. Rutter warned that the process of certifying a product’s compliance with the “indigenous innovation” policy exposes design and other intellectual property to Chinese government scrutiny—and potentially, to piracy.

HP’s pending acquisition of 3Com has been held up, awaiting official approval from China’s Ministry of Commerce (MOFCOM). If 3Com has concerns that China’s indigenous innovation might compromise its intellectual property, one can only wonder what HP will make of the situation.

RIM: Not Dead Yet

Let’s wait a bit longer before we summon the coroner to RIM’s bedside. The company isn’t in danger of imminent demise, by its own hand or as a result of the furious onslaughts of its competitors.

In fact, RIM isn’t even seriously ill. Could it benefit from a better diet, more exercise, and a makeover? Absolutely. But we could say that for many former high-fliers who’ve found life in the smart-phone market more difficult than it used to be.

The smartphone market is changing, heading into a period of intensifying competition in established markets and fresh opportunities in emerging markets. Based on the evidence presented yesterday, in the form of RIM’s latest quarterly results, we’d have to say that the company is doing better extending itself into new markets than it is at defending its old turf.

Revenue, earnings, and average sales price per handset failed to meet Wall Street’s expectations, but subscriber growth was robust and margins remain strong. Challenged by Motorola’s Android-based Droid at Verizon, where RIM derives more than 25 percent of its sales, the company seems to have a fight on its hands. The problem will be exacerbated as Apple’s iPhone moves into Verizon and other CDMA carriers.

These are new threats to RIM’s franchise, and the company will have to respond effectively, with new phones, new marketing, better operating-system software, and an improvement in the quality and quantity of applications that run on the BlackBerry. The challenges are considerable, but RIM knows what it’s up against. It’s gearing up for a fight, not for the undertaker.

A bright spot for the company is foreign sales, which appear to have compensated for its struggles in North America. Clearly, foreign sales are a double-edged sword. Many developing markets, where RIM is placing significant emphasis, will offer lower average sales prices and slimmer margins than those to which RIM has become accustomed in North America.

RIM will have to be careful with its brand, too, both in emerging and developed markets. What is RIM’s niche? What are the BlackBerry’s defining characteristics and its unique identity? RIM knew the answer in the past — the BlackBerry was the enterprise-friendly, mobile-email kingpin — but the company is going through a mid-life crisis that must not become a protracted period of introspection.

Tacking Apple on its own terms will be futile — RIM isn’t a consumer-oriented company, despite its best efforts — and it’s doubtful that RIM can match Google’s geek appeal. I still think the enterprise, particularly certain vertical markets, is a strong franchise for RIM, but the company will have to do more than mount a rearguard defense if it wishes to meet the market’s expectations for growth.

As we look ahead, RIM faces many questions, and definitive answers aren’t yet available. Keep an eye on the company, by all means, but it’s too early for a funeral procession. Throughout its history, RIM has repeatedly refuted its doomsayers.