Cratering RIM Needs a Revolution

If you looked at aftermarket prices on Research In Motion (Nasdaq: RIMM  ) just after its first-quarter results hit the wire last night, you'd think everything was fine. The stock wasn't moving.

But then you must have missed the announcement that trading of RIM shares was halted because of the pending release news. Once the spigot opened up again, RIM crashed hard. The stock dropped more than 15% in a matter of minutes and stayed there all night.

All told, RIM shares have taken a nearly 57% haircut from 52-week highs set in mid-February -- just before Apple (Nasdaq: AAPL  ) launched the iPad 2 and RIM showed us just what its Playbook can (and can't) do. The glory days of 2008 with share prices on a steady $130 level now look like a taunting dream.

Don't cry for RIM?
This is where I would love to soothe ailing RIM investors and say that everything will be all right -- perhaps even call this a buy-in opportunity as Mr. Market overreacted again. But I can't. RIM deserved every ounce of this whipping, and management is showing no signs of understanding just how deep its troubles are.

In the first quarter, RIM missed its own revenue targets, with sales of $4.9 billion, and $1.32 of adjusted earnings came in at the low end of bottom-line guidance. Keep in mind that these ranges were "wider than normal" to account for supply chain disruptions from the Japanese disasters in March. The 500,000 Playbooks sold was actually better than most observers expected, so there's a bright spot for you, eh?

But that's where the good news ends. The company is cutting costs and jobs while being very careful to call it a "streamlining exercise" and not a "restructuring" or "reorganization." Yet the company slashed both sales and earnings guidance for the coming quarter and year to levels far below already-pessimistic analyst targets. You see, slipping product schedules will make RIM miss most of the crucial back-to-school season.

Perhaps most damning of all, co-CEOs Jim Balsillie and Mike Lazaridis are doing fine impressions of the common ostrich. "We're most of the way through the transitioning of our platform, and we believe we are taking the right steps to position RIM for the future," Balsillie said. But don't expect him to explain what he means by that: "RIM has taken a unique path, and why we do things the way we do may not be obvious from the outside."

The revolution is planned for 2012
Then there's the much-touted transition from the current BlackBerry software to the QNX-based stuff running the PlayBook now and all RIM products in the future. BlackBerry 7 will provide a modest upgrade while we wait for the major QNX overhaul, due in 2012. Why not faster? Because RIM doesn't want to abandon its BlackBerry developers, and there aren't any dual-core smartphone processors available yet.

Baloney. If you're moving to QNX eventually, the developers will have to follow anyhow. As for the dual-core excuse, firstly, I don't get why QNX couldn't run on a decent single-core ARM (Nasdaq: ARMH  ) processor like the Marvell (Nasdaq: MRVL  ) cores RIM used in the BlackBerry Torch. Anyway, not only have NVIDIA (Nasdaq: NVDA  ) , Marvell, and others produced the chips that Balsillie is lacking for quite some time, but the first dual-core handset was available back in February.

If LG could develop a dual-core phone that early, why couldn't RIM start its design early, too?

What it all boils down to
I'd love for RIM to become relevant to the mobile market again, because I think stronger competition drives everyone to do better. It's good for the total market, it propels faster growth as smartphones destroy the reigning feature phones, and it's obviously good for consumers.

Alas, it's just not in the cards. At this point, RIM would be better off with a wholesale restructuring and strategy shift that leaves the current CEO duo looking for new jobs. Nokia (NYSE: NOK  ) is betting the company on a whole new strategy and software platform under the wing of Microsoft (Nasdaq: MSFT  ) . If Mr. Softy doesn't want another protege, maybe RIM could just port the best messaging features of BlackBerry over to the Android platform and try again. That would certainly be easier than pushing this QNX elephant through the eye of a needle. Or perhaps the company could just find an all-out buyer that's willing to shake things up.

Either way I think it's obvious that RIM's strategy isn't working, despite management's obtestations. If you want a turnaround play in the mobile market, I think you'd be better off with long-shot Nokia than head-case RIM.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Motley Fool owns shares of Microsoft, Apple, and Marvell Technology Group. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and NVIDIA. They have also recommended creating a diagonal call position in Microsoft, writing puts on NVIDIA, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (7) | Recommend This Article (8)

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  • Report this Comment On June 17, 2011, at 2:18 PM, chris12tom wrote:

    Nice article. However, I don't believe RIM is exactly dead in the water yet. It looks undervalued and it may not be what it once was, but today created a buying opportunity. Call me an optimist but read more about its earnings below:

    http://bull-bear-battle.blogspot.com/

  • Report this Comment On June 17, 2011, at 3:48 PM, mracz425 wrote:

    RIMM is stuck in the dinosaur ages. They need a new innovation team quickly. There products just lack behind current technology. They don't carry that "wow" factor that current phones on the market have. I agree as well that the CEO duo (craziness) needs to go. RIMM will be gone in a few years if it doesn't change.

  • Report this Comment On June 17, 2011, at 6:05 PM, gdf55 wrote:

    I wrote about this a month ago ( http://www.fool.com/investing/general/2011/05/20/rip-rimm.as... ) and was flamed by a bunch of BlackBerry acolytes, some of whom appeared to have created accounts just for the occasion. You should have seen the comments that got deleted!

    I would strongly caution any remaining RIMM followers (see @chris12tom above) to think of this drop not as a buying opportunity, but rather as the edge of a long slide into obscurity.

    IMHO, it's a toss-up as to killed RIM: Apple with the iPhone, or Verizon with the introduction of a legit Android-based smartphone line (not to mention adding the later-generation iPhone late in the game).

  • Report this Comment On June 17, 2011, at 8:02 PM, lucasmonger wrote:

    Nicely written article. I think the only reason RIMM is able to even sell the number of uits is sells is because many large companies are habitually still offering Blackberries as their only choice for free to their employees. Some people take the plunge and buy and iPhone or Android phone on other own dime, then work hard to coerce their IT department to let them connect. As more and more companies adopt a bring-your-own-smartphone policy, these numbers will continue to nosedive.

    I carried blackberries for years, hated them (they all broke because that stupid click wheel was the weakest link) and bought my first personal smartphone when the iPhone was released, then never went back. The browser was a joke, you only used it as a last resort. The user interface was horribly designed to the point that to be efficient you memorized keyboard shortcuts. Blackberry was king during their time in the late 90's and early 2000's, but the signs are all there, the dynasty they once enjoyed is over.

  • Report this Comment On June 19, 2011, at 6:34 PM, WalterMatthews wrote:

    I think RIM's Blackberry is a better product than Apple's iphone, it's just that society has deemed it "cool" to be an iphone user. Don't give up on RIM just yet.

  • Report this Comment On June 20, 2011, at 10:50 AM, TiltnSpill wrote:

    RIM is dead in the water. This recent drop is absolutely NO reason to see this a buying oppurtunity.

    Why not? Look at RIM's recent track record.

    Playbook Tablet - RIM, the company that built its empire on the foundation of corporate email launces a tablet WITHOUT a native email client. Oh... but it can run flash!

    QNX "Superphones" - RIM has been late to market with all of it's new phones, and its recently touted "Superphones" will be no different. Tech blogs have been reporting that the Playbook ate up most of RIM's R&D money. This means even more phones late to market.

    New consumers AREN'T buying Blackberry phones, nobody is buying the Playbook. (500,000 Shipped... YIPPEE!), and existing blackberry users are defecting to Apple/Android.

    I shorted RIM at $50 last August and I'd do it again.

  • Report this Comment On June 20, 2011, at 10:52 AM, TiltnSpill wrote:

    Errata - 3rd paragraph should read, "Rim, the company that built its empire on corporate email, decides to launch a tablet WITHOUT a native email client.

    My apologies.

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