RIM: Death Knell or a Real Turnaround?

I've been following the downward spiral of Research In Motion (Nasdaq: RIMM  ) since late last year -- a sobering activity, for sure. The most recent financial reports are no more joyful, as the company tallies its $125 million in losses and notes its continually slumping sales, resulting in a 25% decline in revenue from this time last year. RIM will no longer even issue guidance, apparently in a concrete example of the old saying, "If you don't have anything good to say, don't say anything at all."

RIM has been stumbling along for some time now. Once the undisputed king of the smartphone market, it dominated boardrooms and government offices. Now, Apple's (Nasdaq: AAPL  ) iPhone is becoming the professional choice, and RIM is losing market share to both Apple and Google (Nasdaq: GOOG  ) , whose Android platform now controls 48% of the smartphone market to Apple's 32%. RIM has managed to retain a paltry 12% -- down from 15% just a month or so ago. Where did those defectors go? To Apple, of course.

Things are going downhill very quickly for RIM, so much so that now even the company's native Canada prefers the iPhone to its very own BlackBerry. New CEO Thorsten Heins has admitted that the company's problems are worse than he envisioned, and a recent shakeup saw the resignation of former co-head honcho Jim Balsillie as well as the company's chief technical officer and COO. In a widely misunderstood statement, Heins stated that RIM will be concentrating on the business sector in the future, leading some analysts to believe that the company was stepping back from the consumer market. The company has since said that this is not the case and that RIM hopes to capture the interest of "young trend-setters" -- a fairly unlikely occurrence at this point.

What does RIM's future hold?
I have believed for some time that RIM's only option is to sell itself to another company, and Heins himself seems to think that might be best, too. But the company is shrinking by the quarter, and some think that the company is not very attractive as a takeover target these days. I would disagree, and here are a couple of reasons why.

First, BlackBerry sales are very strong in emerging markets, such as Africa, Latin America, and the Middle East. Another plus is the company's network operation centers, responsible for the BlackBerry's once-ballyhooed level of security. However, as an embarrassing network failure showed last fall, the infrastructure is ailing. While the blackout of its servers was a giant nail in RIM's coffin, the right buyer could find these NOCs a very attractive acquisition.

The saddest part about RIM's slide is that it was, at one time not long ago, a real force to be reckoned with. Its products were coveted, and it had the corporate world by its communication lines. But then, the company just seemed to give up, launching products almost after they were obsolete, and refusing to keep up with the technology that sent Google's and Apple's market shares skyward. What happened to all the innovative people who once worked there? Perhaps to Apple, or Google. One thing seems certain, and that is that the type of creativity that could save RIM will not seek it out ever again. It's just too late.

Though RIM is ailing, there are other companies that are making a fortune in the ever-expanding mobile-device market. Find out how their success can boost your finances, too, by ordering this special report. It's full of great information, and best of all, it's free!

Fool contributor Amanda Alix owns no shares in the companies mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Apple and Google and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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

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  • Report this Comment On April 02, 2012, at 8:59 PM, BR14 wrote:

    "Now, Apple's iPhone is becoming the professional choice"

    Really? Do you have evidence for this assertion?

    Had you bothered to research your subject, you'd realise that the trend in enterprise is for BYOD.

    Corporations still need the secure backbone RIM provides but allow non-critical employees to use their own devices.

    RIM has responded to this market trend with new software that supports both iOS and Android devices.

    The company has every opportunity to be a signficant player in the smart phone industry if no longer market leader.

    We don't all buy one make of car, refridgerator, electric shaver or other consumer good. Why would we be stuck with only a couple of phone manufacturers?

  • Report this Comment On April 02, 2012, at 9:04 PM, H3D wrote:

    R.I.P.

  • Report this Comment On April 02, 2012, at 9:07 PM, H3D wrote:

    1984 - 2012

    R. I. M.

  • Report this Comment On April 02, 2012, at 9:53 PM, OracleOfOttawa wrote:

    BR14: I couldn't agree with this more. I doubt very much that RIM will ever make drastic strides in regaining market share, but they are a long ways away from being obsolete.

    I own an iMac, and numerous iPods, and am a huge Apple fan and endorser myself. When it comes to cell phones, I wouldn't touch anything but a Blackberry. I don't need games, or fart simulators, or any other ridiculous crap. I need something that I can type quickly with, and is simple to use proper punctuation, and when I send messages or emails I know they will get through.

    It seems we are all too caught up in the Apple abyss, and the media is plaguing us with more and more hype everyday. I'm not stating for a second that Apple doesn't deserve praise for it's innovations and accomplishments. I just don't understand how we are so quick to right off a business that still sells billions of dollars worth of products every year.

    Sent on the Fool Network with Blackberry

  • Report this Comment On April 03, 2012, at 11:41 AM, seattle1115 wrote:

    @InfoThatHelp: If Canada can survive the humiliation that is Celine Dion (not to mention Nickleback), Canada will survive this.

  • Report this Comment On April 03, 2012, at 12:42 PM, lucasmonger wrote:

    @BR14 & OracleOfOttawa

    Everybody in my company either brings their own iPhone or Android phone, or tolerates the "free" company-proviced Blackberry while hating it. Few people love their Blackberries like they did in the late 90's.

    RIM is doomed. Maybe Microsoft will buy them out and try to integrate MS Exchange and the Blackberry services into one. Or maybe another handset maker will buy them for the Blackberry name and create a new line of Android phones (the HTC Blackberry Epic Droid 4G LTE Evo) . Or they will go by the wayside like Kodak, Polaroid, Digital, Compaq, and a long list of other market leaders who are no longer viable.

    When the original iPhone was introduced in 2007, RIM was doomed. 5 years later, RIM is still playing catchup but without a solid OS and ecosystem, there just doesn't seem much hope left for RIM.

  • Report this Comment On April 03, 2012, at 3:20 PM, TrojanFan wrote:

    What investors in general fail to realize is that even if Blackberries disappeared entirely in North America, RIMM's International business alone is more then sufficient to sustain the company while they retool. They have no debt to speak of, so how exactly are they going to be forced into bankruptcy again? That argument just doesn't hold any water.

    Are they struggling, yes. Will they be out of business in a year or two or even three??? Very unlikely.

    Furthermore, RIMM has a distinct set of competitive advantages in foreign markets that their competitors lack. Foreign telecom markets in the comparatively empoverished developing world a are a lot more backward and data constrained then in the US and Canada. Furthermore, they are run by a patchwork of different state owned monopolies in each country. Innovation in telecommunications is driven by competition and since competition is lacking, those data constrained conditions are likely to persist for a long time to come because the government operators aren't going to be driven to invest a lot of resources in them. RIMM excels at making efficient, productivity enhancing devices for DATA CONSTRAINED networks. As big of a threat as Apple has been, the real source of RIMM's difficulty in North America is the expanding bandwith and increasing reliability of the wireless networks that smartphones run on. Apple's devices are data hogs compared to Blackberries and consume about 3 times the bandwidth in order to operate. That used to be a problem (all the AT&T network outages in New York and San Francisco for example), but no longer. RIMM had a much greater competitive engineering advantage when bandwidth was constrained, but that is no longer an issue so their competitive advantage in the affluent domestic markets are dimishing, at least until the QNX platform transition is complete. So do you sink vast resources into trying to reinvent yourself and possibly failing or take what you already do well and look for other addressable opportunities around the world to take those core competencies to and do again what you've already done once in North America? From a strategic standpoint that's a no brainer, even if your shareholders hate you for it in the short run.

    And the strategy is starting to bear fruit. They are outselling Apple in North Africa and the Middle East by a factor of 3 to 1 and outselling them in Latin America by a factor of 5 to 1. They are knocking the cover off the ball in Indonesia for example. Before you go knocking Indonesia as an irrelevant market, here is a reality check for everyone: Indonesia has the 4th largest population in the world right behind China, India and the United States and a higher population then Brazil. There are over 238 million people who live in Indonesia. The rest of the competition is reluctant to follow them into these markets for a couple of reasons:

    1) You have to sell down market at lower ASPs to pursue these opportunities because of the comparatively lower purchasing power in the emerging/developing world. Their peers are unwilling to tolerate the short term margin erosion that is necessary to deeply penetrate these markets for fear of unnerving their shareholders as RIMM has witnessed.

    2) The competition's phones are data hogs by comparison and will not perform nearly as well as the Blackberry on these more data constrained platforms. The competition doesn't want to tarnish their brands in these regions with poor performance so they are left to either engineer a completely separate line of slimmed down products or wait for the networks to catch up to the designs they already have that they tailored for post 2006/2007 North American telecom provider platforms.

    3) RIMM gives foreign telecom operators a cut of the instant messaging revenue stream which meglomeniacal revenue control freaks like Apple are unwilling to share. This gives RIMM most favored nation status with all the incumbent telecom carriers in these burgeoning markets and that's going to be a difficult first mover advantage to whittle away at.

    So what you have here is a company that is gaining a big time first mover advantage in the foreign growth markets of the future, but that fact is going almost completely overlooked by a market that is obsessed with their diminishing market share in the comparatively affluent home markets where most of the financial analysts and media that enjoy bashing on their franchise in the hopes of elevating their own Apple shares reside. There is an enormous misperception and market disconnect here which is what deep value investing is all about.

    RIMM has a unique opportunity to deeply entrench themselves in comparatively impoverished markets all over the world. To many that may not sound like a winning strategy or an opportunity worth chasing, but marketing to the poor and overlooked consumers of the US is precisely how Wal Mart became the king of discount retail and a global marketing juggernaut. Serving underserved markets is one of the keys to long term success and RIMM is making some smart strategic moves in this regard given the hand they have to play with.

    I don't see them dying anytime soon and considering that in my view they ARE a going concern and will CONTINUE to be a going concern, the fact that they are trading awfully close to their liquidation value makes all those future earnings streams highly accretive to new investment dollars today.

    The US market is important, but it only account for 25% or so of world GDP and about 4.5% of the world population. The rest of the opportunity set resides elsewhere and RIMM is making big strides in the "everywhere else" segment of the world, but Americans are so egocentric by nature that they don't even see it happening.

  • Report this Comment On April 03, 2012, at 5:48 PM, cduance wrote:

    RIM will be around for the next decade. They already have a sophisticated and incredibly secure Trojan horse in 90% of enterprises with there Blackberry Enterprise Servers now add the fact that they will be able to add iOS and Android devices to it with there BES fusion update which they will need a client access license for each additional device means that they can sell an additional license (essentially with very little overhead) without having to build and flog a device themselves so I would not be surprised if they actually increased there margins just by selling the licenses for other companies devices.

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