Research In Motion's Waterloo

This Battle of Waterloo is being waged in Ontario, instead of Napoleon Bonaparte's epic final fray in Belgium almost 200 years ago.

Jaguar Financial, a small Canadian merchant bank that holds a relatively small stake in Research In Motion (Nasdaq: RIMM  ) , has published an open letter to the company's board calling for a "value maximization process." Jaguar is speaking on behalf of itself and other unnamed RIM investors, who together own less than 5% of outstanding shares. Although their overall stake in the company is relatively light, the message being conveyed is clear: Do something.

This comes a few short months after another open letter to the company. That one was supposedly from a high-ranking company executive and provided a candid look at the beleaguered BlackBerry maker from the inside. Regardless of the perspective, the unifying theme is a lack of innovation.

Jaguar CEO Vic Alboini is recommending that the company's board appoint a special committee consisting of four or five of the existing seven independent directors to begin a shareholder value maximization process, adding that it believes a "transformational change" is necessary. Everything should be on the table, from monetization of the RIM's patent portfolio to an all-out sale of the entire company. Alboini cites four primary arguments as evidence:

  • Poor share-price performance. RIM reached an all-time high of $148.13 back in June 2008. Yesterday's close of $30.97 represents a loss of nearly 80% from those highs in just over three years, drastically underperforming the tech-heavy Nasdaq Composite Index's roughly 0% return and the broader S&P 500's approximate 13% decline over the same time period.
  • Lack of innovation resulting in a loss of market share. The company's inability to offer innovative products and its lackluster app ecosystem have contributed to declining market share, dropping in the U.S. from 39% to 22% from July 2010 to July 2011 according to comScore. Recently, Gartner's separately calculated figures peg RIM's smartphone share worldwide at 11.7%, compared with 18.7% a year ago. Meanwhile, Apple's iOS and Google's (Nasdaq: GOOG  ) Android continue to accelerate consumer adoption.
  • Corporate-governance concerns. We've heard this story before. There's no justifiable reason to have both CEO and chairman positions shared by Jim Balsillie and Mike Lazaridis, even if they are BFFs. RIM was able to fend off the last institutional investor that questioned the arrangement by agreeing to form a committee and prepare a report by Jan. 31, 2012. Alboini calls for a single CEO and an independent chairman to quickly address this concern.
  • Recent consolidation in the mobile and patent spaces. Citing recent patent-related events such as Google's acquisition of Motorola Mobility (NYSE: MMI  ) and Eastman Kodak's (NYSE: EK  ) hawking of its own patent portfolio, Alboini believes current market conditions present an opportunity for RIM to benefit from its own trove of patents, if only the company would recognize the opportunity and take action.

The letter concludes by calling other shareholders to action to rally behind Jaguar in a call to arms, who responded as shares rose nearly 3% on a broadly down day yesterday. It's tough to counter Alboini's points, and RIM hasn't issued an official response yet, even though it was quick to respond to the aforementioned employee open letter. Management can't continue to brush aside these concerns indefinitely as shareholders and employees alike lose patience. The company needs to act quickly if it wants to reinstate any semblance of faith in its followers.

In an interview with Bloomberg, Alboini also questions the wisdom of how much RIM has riding on the QNX operating system that it recently acquired. He urges the board to acknowledge the possibility that QNX won't succeed instead of presuming its preordained triumph, and he even implied that RIM could end up suffering a similar fate to bankrupt Nortel Networks in a worst-case scenario.

Including Android support will probably help boost PlayBook sales, but it also counterproductively de-motivates developers from boarding the QNX ship. Why would any developer work on the QNX platform when it can still reach the same audience -- plus the whole Android community -- by developing for Android? Building an app ecosystem from the ground up while competing with more robust, mature, and growing offerings is certain to fail.

Call me crazy, but I think RIM has a better chance if it ditches QNX and transitioned to a full-fledged hardware OEM like Samsung or HTC while licensing Android and Microsoft Windows Phone 7. The company already needs to step up its hardware game anyway. I know, it sounds crazy and won't happen, but it's so crazy it might just work.

At this point, investors are desperate for change. I don't care that the stock is cheap. The company's current course will only lead to more blood in the streets. RIM has shown that it doesn't prioritize investors' concerns, so why would you invest?

Fool contributor Evan Niu owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Apple, Research In Motion, and Google. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Microsoft and creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 07, 2011, at 9:06 PM, etgh wrote:

    Firstly, this investment company has a dismal track record and seems to have once been a mid-sized financial investment company but now seems to be a one person outfit. Their OSEC filings financial indicate a dramatic spiral down over the past five years to almost zero.

    Secondly, I don't disagree with the in general the substance of his comments. I agree that RIM has to execute, the time for sitting back and watching the market slip away is over. However, rallying the stock holders to Jaguar as a voting block is a bit of a stretch.

    RIM is now running flat out and has replaced its entire line of smartphones and is about to announce more new products.

    Earnings are going to surprise many.

  • Report this Comment On September 07, 2011, at 10:52 PM, BR14 wrote:

    You're crazy. As are the fools at Jaguar. They clearly have no clue about the mobile market.

    Android is under considerable threat from patent suits and is quite likely to lose any competitive advantage soon.

    RIM needs a unique OS to allow it to maintain its secure advantage that makes it the number one choice for the enterprise market. And for pro-sumers also by the way.

    If RIM used Android or Windows it would have zero advantage over any other device.

    There's a reason Apple has done so well. They wouldn't have had half of the success without having full control over hardware and software.

    RIM has lost initiative because they failed to respond quickly enough to market trends, not because of their operating system. Had RIM developed a low battery life large screen games machine three years ago in addition to their core devices, they'd still be right at the top.

    The fact they didn't has more to do with share price than anything else.

  • Report this Comment On September 08, 2011, at 9:50 AM, dundundundun wrote:

    Its is as if Jaguar Financial (great name btw, meh) has been under a rock for a year, just got news things were slowing down at RIM and came out to address this situation. First, you sir, are late to the party. Second, the party is over! and a new plan has been set in motion. "Do something" ? are you serious? all of their current phones didnt exist 2 months ago, its a completely new line. Do something? they have a full touch screen, a half touchscreen, a slider touchscreen, and a brick no touch screen (if they missed any, let me know).

    The only thing Jaguar Financial has done in their dismal attempt to jump on the bandwagon is...well, get on the bandwagon. But the bandwagon is stopped, and going nowhere. RIM, on the other hand, has new life.

    Note to Jaguar Financial investors, Id probably being to look elsewhere to invest your money (seems like someone, Vic Alboini, lost a little bit of money and is playing the crying game)

  • Report this Comment On September 08, 2011, at 10:34 AM, daillengineer wrote:

    Do you have family and friends who can't wait to upgrade to the newest blackberry's ?? Look around you. All I see are friends and family members complaining and ditching their blackberry's for iPhones and Andorid phones. Wake up people. People want apps. Blackberry will never have what iOS and Android have.

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