How RIM May Pull Off a Turnaround

Not many tech companies have gone from Wall Street darling to reject with such breathtaking speed as Research In Motion (Nasdaq: RIMM  ) has done over the past six years.

At the onset of 2006, shares were near a split-adjusted $23. Just two and a half years later, shares reached their all-time intraday high of about $148 during the summer of 2008, a gain of approximately 543%. As we all know, the past three and a half years have not been kind to the BlackBerry purveyor, as the stock has now given it all back and then some. Shares now trade near $15, roughly 90% less than its peak.

Research In Motion Stock Chart

Research In Motion Stock Chart by YCharts

With a potential board shakeup afoot, can anything turn this far fallen mobile has-been around?

Have no fear! Captain Obvious is here!
At the risk of stating the obvious, RIM needs to make a major strategic shift post haste. Further exhibiting my knack for the conspicuous, it's clear that current co-CEOs and co-Chairmen Mike Laziridis and Jim Balsillie are decidedly uninterested in what's best for the company and are content with its current trajectory into irrelevance, despite their sizable equity holdings.

Current independent director Barbara Stymiest is supposedly fixing to have a sit-down as the board's first independent chair. Jefferies analyst Peter Misek corroborates the speculation with his own sources, while also believing she will "initiate a formal strategic review, possibly trim costs in the hardware business, and possibly announce additional partnerships."

A new Microsoft for mobile?
By "additional partnerships," Misek is specifically referring to licensing its delayed BlackBerry 10 (nee BBX) operating system to prolific smartphone makers like Samsung and HTC, and potentially others. Misek believes Research In Motion is already quietly setting this plan in motion. It would give OEMs yet another OS to infuse devices with, along with Google (Nasdaq: GOOG  ) Android and Microsoft (Nasdaq: MSFT  ) Windows Phone. RIM would license BB 10 in the way that Mr. Softy licenses WP7, as opposed to open-source Android, which could create a new revenue stream.

Software is one of RIM's few strengths nowadays, namely its BlackBerry Enterprise Server (BES) technology's security. RIM recently did something right by launching BlackBerry Mobile Fusion, which brings that security to Apple (Nasdaq: AAPL  ) iOS and Android devices. As painful as it may be, opening up BES to other platforms smartly embraces the rising iOS and Android tide within enterprise, instead of fighting a losing battle.

Last BlackBerry standing
Further fueling the idea that RIM may shift more toward software are reports that the company has canceled a number of its upcoming BlackBerry 10 devices. Some of the products in its pipeline were starting to kick up the game in the industrial-design department, with devices codenamed Colt, Milan, and London supposedly in the works, as well as one designed by Porsche.

The Colt was supposed to be the first BB 10 phone on the market, but it has now been axed altogether. The Milan was also rumored to be a BB 10 smartphone, but it looks like it may have just been another BB 7 phone, and wireless carriers weren't too keen on offering another underwhelming BlackBerry. Either way, the Milan is dead now, too. The Porsche model was also considered a "disaster."

What's left? The BlackBerry London.

Source: The Verge; leaked picture of the BlackBerry London.

Source: The Verge; leaked picture of the BlackBerry London.

If the rumblings turn out accurate, RIM is slimming down its hardware offerings to this single BB 10 model, due out in the third quarter.

RIM of the future?
If RIM decides to slowly move out of hardware while focusing on higher-margin software and services, which have slowly comprised larger portions of revenue of late (21% last quarter compared with 18% a year ago), it could be the foundations for an actual turnaround.

Doing so would have bumps in the short term during the transition, and the platform's viability is far from certain. In the long term, it could result in more BB 10 devices spreading throughout the market and could mean it could stem its dramatic market-share losses.

To be frank, I don't think RIM will ever regain its former glory or come close to competing with iOS or Android in terms of market share or ecosystem vibrancy. But if it pursues this major strategic transformation, it at least has a chance of retaining some semblance of relevance, which beats its current odds of roughly 0% considering its present course.

What's next
In the coming months, Barbara Stymiest will probably be named chairwoman, and shares will rally at the prospect that Lazaridis and Balsillie will give up some power. Over the summer, I gave RIM a big red "underperform" CAPScall with a start price of $27.82. Shares are down roughly 45% since then, while the market is up about 1%, earning me 46 points on my scorecard. I'm going to end that underperform CAPScall today and wait to see what RIM has in store.

I'm certainly not giving it an outperform CAPScall, but am moving to the sidelines for the sheer possibility that Stymiest can engineer a turnaround. If nothing materializes, shares may find themselves back on my scorecard next to a big red thumb.

The odds are still stacked against RIM, but any probability beats 0%.

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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 Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Apple 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.

Read/Post Comments (6) | Recommend This Article (4)

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 January 06, 2012, at 10:55 PM, 614streets wrote:
  • Report this Comment On January 07, 2012, at 5:21 AM, H3D wrote:

    Much too little too late. Much much too late. And far too much bullsh:t.

  • Report this Comment On January 07, 2012, at 5:32 AM, RealMrBean wrote:

    RIMM is toast. Why would any licensing deals help? Which OEM is stupid enough to pay for yet another closed OS when there are proven eco-systems around that are free-of-charge.

    Their whole management team is to blame, not only Lazariidis & Balsillie. A bunch of sunshine managers, unable to see the signs of the time and come up with reasonable products of similar quality of their competitors.

    This company will be following the route of Siemens / Benq, Phillips etc. into extinction before long, whereas the likes of Nokia at least seem to understand how to fix their problems.

  • Report this Comment On January 08, 2012, at 1:05 PM, etgh wrote:

    I can't understand how this company is still around.

    Devices that still run on mobitext is like carrying around a tube radio. They may have a keyboard but I don't believe they even have color screens !!

    Accessing the Internet and touch screens are just a dream for this company and yet, folks seem to still buy them.

    Get with it RIM and get out of the 80's !

  • Report this Comment On January 08, 2012, at 8:14 PM, superhetrodyne wrote:

    RIM's new OS transition is now complete. The NOC's have been upgraded to modulate both BB7 and BB10 operating systems and BB10 will be licensed by Samsung and HTC. This combination will produce smart phones with the technology to satisfy consumer, corporate and governments with the ultimate secure, push and app friendly ecosystem all in one eloquent handset. Apple will be left in the dust and will choke to death.

  • Report this Comment On January 08, 2012, at 8:33 PM, infektu wrote:

    We shall see very soon what the QNX 2.0 looks like. Very soon, like this week. If they put OS10 test devices in hands of beta testers over the next few months they have a standing chance.

    Remember? Apple had no chance, since RIM was already ahead. Then Samsung had no chance, since Apple was already ahead... the story goes on.

    to RealMrBean, etgh, InfoThatHelp, H3D

    You guys have NO clue. And are NOT funny.

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