What does the future hold for Research In Motion?
RIM’s last shot? Its numbers are off, it is ditching staff and it suffered a multi-continent three-day data outage.
By Danny Bradbury
November 20, 2011
November 20, 2011
It is April 2011. Mike Lazaridis, joint CEO of Research In Motion, is giving an interview to a BBC TV journalist, who asks about the security issues the company is facing in India. “That’s unfair,” said Lazaridis, in what amounts to a pout. “We’ve been singled out because we’re successful.” “We have a lot of viewers in the Middle East and Asia,” the journalist persists. “You can be confident in giving them assurance that everything…” Lazaridis cuts him off. “It’s over. Interview’s over,” he said. “We’ve dealt with this.” He points at the camera. “Turn that off.”
Why did Lazaridis lose his cool? It’s a complicated question, and the answer probably lies in the series of turns the company’s fortune has taken of late.
There is no questioning RIM’s success. Founded in 1984, the company worked quietly on mobile data network projects until shooting to fame with the launch of its flagship BlackBerry product in 1999. For the last 12 years, Lazaridis and co-CEO Jim Balsillie have been busy building a global empire, claiming more than 10 per cent of the smartphone market and boosting sales from $70 million in 1999 to $19.9 billion in 2011. No wonder RIM was named the fastest growing company in the world by Forbes in 2009.
Perhaps Lazaridis’ outburst betrayed a deeper frustration with a market that is growing increasingly dispassionate about the company he founded nearly 30 years ago. Analysts are questioning everything from the products to the company’s employment practices and morale, all the way through to its very leadership structure.
Troubling numbers
“My prospect for RIM took a dive November/December of 2010,” said Mark Tauschek, director of IT research for Info-Tech Research. He highlights selling price, market share and mind share in developed countries as key concerns. “They seem to be burying their heads in the sand. They are hiding the things like average selling prices going down [and] losing market share in the developed world. They are losing mind share.”
Markets rarely lie and RIM’s share price has taken a beating of late. “The stock has dropped from $150 to $30. It even hit $22 at one point,” said Vic Albioni, CEO of equity firm Jaguar and an activist investor in RIM. The stock rested at $150 back in the summer of 2008, when RIM’s financial results propelled it along nicely. Then, in June this year, it missed estimates for its quarterly results. That sent the stock, which was already off, plunging further.
Albioni’s statement came before RIM announced further disappointing results in mid-September. Revenue for the second quarter of its 2012 financial year was $4.2 billion. This represented a 15-per-cent slippage from $4.9 billion in the first quarter, and a 10-per-cent drop from $4.6 billion in the same quarter of fiscal 2011. RIM missed its estimates again.
The firm shipped 10.6 million smartphones in the quarter, well below its estimates of 11 million to 12.5 million, which made analysts jumpy. Its stock slipped from $30 the day of the announcement to around $22 the following day.
Significantly, given Tauschek’s comments, RIM made an important announcement on its earnings call: this will be the last time it issues guidance on average sales price (ASP). After December, it won’t report ASP nor will it report net subscriber additions.
What’s wrong with RIM?
RIM refused to be interviewed by Backbone for this article, in spite of repeated requests and reassurances that we would approach the company with an open mind. That refusal, along with its decision to report less data, rather than more, are not the actions of a company that is feeling positive about its position in the market. What does it have to worry about?
Nothing, said Ian Klugman, president and CEO of Communitech, a not-for-profit organization that supports technology businesses in the Waterloo region, RIM’s birthplace. “People are counting RIM out, [but] because we live in the community and know the people who work at RIM, we have a sense of the calibre of the people. It is a great company with some truly great people,” he said.
However, having done layoffs in July, the firm now has 10 per cent fewer of those people. And several senior executives have also left. At the same time, mobile competition is mounting. Apple has taken the smartphone market by storm with iOS on the iPhone, which now garners 18.2 per cent market share, according to Gartner. Google launched Android the same year the iPhone made its debut. The open-source operating system, which now graces large numbers of phones from multiple providers, has reached a market share of 43.5 per cent. BlackBerry has 11.7 per cent, and sales are down.
Tauschek put RIM’s current predicament down to the first iPhone. “That remaking or rethinking of the first iPhone really changed users’ perceptions. It changed a lot of things in terms of the hold that RIM had on the smartphone market, not only in the consumer space but in the enterprise space,” he said. “Where they really fell down was that they didn’t see or believe in the iPhone. The rumour is that they laughed at the first iPhone. They should have been shaking in their boots.”
Raymond Pirouz, lecturer at the Richard Ivey School of Business, said Apple made the right decision by courting developers, creating the iTunes store and then turning it into a retail vehicle for software. “Consumers want to know what kind of a world the hardware is unlocking for them,” he said, adding that Apple’s iOS devices are effectively a gateway into a huge cash-generating ecosystem. The developers do most of the marketing for Apple by selling their own products through its store.
RIM may have launched an app store, but it hasn’t mimicked Apple’s mastery at presenting ecosystems linked seamlessly with the hardware, he said. The same is true of RIM’s music store, launched at the same time as its BlackBerry Playbook tablet in August. The unveiling was essentially an aside, Pirouz said, and lost any impetus it may have had.
“To launch it as an aside—they’re trying to appease the analysts. They’re throwing stuff out there without any holistic strategy,” he said. “They need to be able to sell a vision of where the company is going and what is there for the consumer. Then the analysts will follow.”
That’s a trick even Microsoft is starting to get, Tauschek said. Microsoft has long languished in the mobile space, but in September it previewed Windows 8 at its BUILD conference. The system, designed to run on tablets and desktops using a single profile, features a bold new interface called Metro as an alternative to the standard Windows desktop.
“It is almost like Microsoft woke up and said ‘We’re getting our butts handed to us, we have to do something about this,’” Tauschek said. “RIM hasn’t had that epiphany yet, where they said we have to introduce something really innovative and new and market altering. The window for them to do that is narrowing.”
Betting on QNX
RIM is trying to revamp its business with QNX, the operating system that made its debut on the PlayBook earlier this year. It purchased QNX from Harman International in April 2010, and worked to revamp it for the tablet. Phones running QNX, such as the BlackBerry Colt, are slated for early next year.
But the QNX-based PlayBook was panned when it launched. The tablet had no native e-mail, calendar or contacts applications, forcing users to pair with a BlackBerry. “They bought QNX because their OS was long in the tooth and then they realized that they’d have to rebuild it from the ground up,” Tauschek said.
The company has sold just 200,000 PlayBooks since launching them in April. “Against an iPad you have to do something really compelling and it’s hard to match that user experience,” Tauschek said. Now, RIM has to pull a rabbit out of the hat with QNX on its phones, just as Microsoft did when it overhauled its aging Windows Mobile operating system, redesigning it substantially for Windows Phone 7. “Exactly the same thing happened to them. There was a huge lag on sales, and it decimated their mobile products,” he said. “They know all too well what RIM probably didn’t, which was that this transition, whether building a new OS from scratch or buying a new one, puts them in the position they’re in now. So why buy (devices running) BlackBerry OS 7, which will be good for six months before QNX devices come out?” Unfortunately, unlike Microsoft, RIM bases its revenues almost entirely on its mobile products. That makes this transitional phase a more difficult one financially.
Patent value
Albioni said RIM should diversify its revenue streams to help weather the storm using intellectual property. “Nortel’s patents sold for $4.5 billion, and then there was Google’s reactive takeover bid for Motorola,” he said, arguing that RIM’s patents are worth between $2 billion and $5 billion. “You’d keep a license on the patents if you sold them, or you maintain 50 per cent ownership interest. But you try to generate a revenue stream from that patent portfolio.”
That isn’t Albioni’s only option for RIM. He said a sale might work and suggested the company is worth $60 per share at the moment. He is not attached to RIM remaining a Canadian company. He also believes that it is time for a leadership change. “We are unhappy with the company CEOs being co-chairs. I think the first thing that should be done is there should be an independent chair,” he said. “The second thing in terms of corporate governance is that the board should take a hard look at who is running the firm and who should be running it.” He calls Lazaridis and Balsillie good builders, but said the time has come to hand over the baton. “Initially we were looking at one of the CEOs becoming single CEO. Now we’re thinking that there may be a lot of momentum to appointing a new, transformational leader.”
Klugman disagreed. “I happen to have the privilege of spending time with the leadership of RIM. Is it because we’re Canadians that we don’t think that we can have world-class leaders?” he said. “I don’t tend to support anything along the lines of shifting gears in mid stream. Especially in a year of transition, you need a steady hand on the tiller.”
But with two sets of hands of that tiller, the question remains: where is RIM heading, and will the destination be a profitable one?
Illustration: Jon Berkeley
Also read:
Being a RIM booster keeps getting tougher
RIM should keep its executive suite intact—for now
RIM BlackBerry PlayBook / QNX
There is no tablet war. Apple won
Which is the right tablet for you?
Why did Lazaridis lose his cool? It’s a complicated question, and the answer probably lies in the series of turns the company’s fortune has taken of late.
There is no questioning RIM’s success. Founded in 1984, the company worked quietly on mobile data network projects until shooting to fame with the launch of its flagship BlackBerry product in 1999. For the last 12 years, Lazaridis and co-CEO Jim Balsillie have been busy building a global empire, claiming more than 10 per cent of the smartphone market and boosting sales from $70 million in 1999 to $19.9 billion in 2011. No wonder RIM was named the fastest growing company in the world by Forbes in 2009.
Perhaps Lazaridis’ outburst betrayed a deeper frustration with a market that is growing increasingly dispassionate about the company he founded nearly 30 years ago. Analysts are questioning everything from the products to the company’s employment practices and morale, all the way through to its very leadership structure.
Troubling numbers
“My prospect for RIM took a dive November/December of 2010,” said Mark Tauschek, director of IT research for Info-Tech Research. He highlights selling price, market share and mind share in developed countries as key concerns. “They seem to be burying their heads in the sand. They are hiding the things like average selling prices going down [and] losing market share in the developed world. They are losing mind share.”
Markets rarely lie and RIM’s share price has taken a beating of late. “The stock has dropped from $150 to $30. It even hit $22 at one point,” said Vic Albioni, CEO of equity firm Jaguar and an activist investor in RIM. The stock rested at $150 back in the summer of 2008, when RIM’s financial results propelled it along nicely. Then, in June this year, it missed estimates for its quarterly results. That sent the stock, which was already off, plunging further.
Albioni’s statement came before RIM announced further disappointing results in mid-September. Revenue for the second quarter of its 2012 financial year was $4.2 billion. This represented a 15-per-cent slippage from $4.9 billion in the first quarter, and a 10-per-cent drop from $4.6 billion in the same quarter of fiscal 2011. RIM missed its estimates again.
The firm shipped 10.6 million smartphones in the quarter, well below its estimates of 11 million to 12.5 million, which made analysts jumpy. Its stock slipped from $30 the day of the announcement to around $22 the following day.
Significantly, given Tauschek’s comments, RIM made an important announcement on its earnings call: this will be the last time it issues guidance on average sales price (ASP). After December, it won’t report ASP nor will it report net subscriber additions.
What’s wrong with RIM?
RIM refused to be interviewed by Backbone for this article, in spite of repeated requests and reassurances that we would approach the company with an open mind. That refusal, along with its decision to report less data, rather than more, are not the actions of a company that is feeling positive about its position in the market. What does it have to worry about?
Nothing, said Ian Klugman, president and CEO of Communitech, a not-for-profit organization that supports technology businesses in the Waterloo region, RIM’s birthplace. “People are counting RIM out, [but] because we live in the community and know the people who work at RIM, we have a sense of the calibre of the people. It is a great company with some truly great people,” he said.
However, having done layoffs in July, the firm now has 10 per cent fewer of those people. And several senior executives have also left. At the same time, mobile competition is mounting. Apple has taken the smartphone market by storm with iOS on the iPhone, which now garners 18.2 per cent market share, according to Gartner. Google launched Android the same year the iPhone made its debut. The open-source operating system, which now graces large numbers of phones from multiple providers, has reached a market share of 43.5 per cent. BlackBerry has 11.7 per cent, and sales are down.
Tauschek put RIM’s current predicament down to the first iPhone. “That remaking or rethinking of the first iPhone really changed users’ perceptions. It changed a lot of things in terms of the hold that RIM had on the smartphone market, not only in the consumer space but in the enterprise space,” he said. “Where they really fell down was that they didn’t see or believe in the iPhone. The rumour is that they laughed at the first iPhone. They should have been shaking in their boots.”
Raymond Pirouz, lecturer at the Richard Ivey School of Business, said Apple made the right decision by courting developers, creating the iTunes store and then turning it into a retail vehicle for software. “Consumers want to know what kind of a world the hardware is unlocking for them,” he said, adding that Apple’s iOS devices are effectively a gateway into a huge cash-generating ecosystem. The developers do most of the marketing for Apple by selling their own products through its store.
RIM may have launched an app store, but it hasn’t mimicked Apple’s mastery at presenting ecosystems linked seamlessly with the hardware, he said. The same is true of RIM’s music store, launched at the same time as its BlackBerry Playbook tablet in August. The unveiling was essentially an aside, Pirouz said, and lost any impetus it may have had.
“To launch it as an aside—they’re trying to appease the analysts. They’re throwing stuff out there without any holistic strategy,” he said. “They need to be able to sell a vision of where the company is going and what is there for the consumer. Then the analysts will follow.”
That’s a trick even Microsoft is starting to get, Tauschek said. Microsoft has long languished in the mobile space, but in September it previewed Windows 8 at its BUILD conference. The system, designed to run on tablets and desktops using a single profile, features a bold new interface called Metro as an alternative to the standard Windows desktop.
“It is almost like Microsoft woke up and said ‘We’re getting our butts handed to us, we have to do something about this,’” Tauschek said. “RIM hasn’t had that epiphany yet, where they said we have to introduce something really innovative and new and market altering. The window for them to do that is narrowing.”
Betting on QNX
RIM is trying to revamp its business with QNX, the operating system that made its debut on the PlayBook earlier this year. It purchased QNX from Harman International in April 2010, and worked to revamp it for the tablet. Phones running QNX, such as the BlackBerry Colt, are slated for early next year.
But the QNX-based PlayBook was panned when it launched. The tablet had no native e-mail, calendar or contacts applications, forcing users to pair with a BlackBerry. “They bought QNX because their OS was long in the tooth and then they realized that they’d have to rebuild it from the ground up,” Tauschek said.
The company has sold just 200,000 PlayBooks since launching them in April. “Against an iPad you have to do something really compelling and it’s hard to match that user experience,” Tauschek said. Now, RIM has to pull a rabbit out of the hat with QNX on its phones, just as Microsoft did when it overhauled its aging Windows Mobile operating system, redesigning it substantially for Windows Phone 7. “Exactly the same thing happened to them. There was a huge lag on sales, and it decimated their mobile products,” he said. “They know all too well what RIM probably didn’t, which was that this transition, whether building a new OS from scratch or buying a new one, puts them in the position they’re in now. So why buy (devices running) BlackBerry OS 7, which will be good for six months before QNX devices come out?” Unfortunately, unlike Microsoft, RIM bases its revenues almost entirely on its mobile products. That makes this transitional phase a more difficult one financially.
Patent value
Albioni said RIM should diversify its revenue streams to help weather the storm using intellectual property. “Nortel’s patents sold for $4.5 billion, and then there was Google’s reactive takeover bid for Motorola,” he said, arguing that RIM’s patents are worth between $2 billion and $5 billion. “You’d keep a license on the patents if you sold them, or you maintain 50 per cent ownership interest. But you try to generate a revenue stream from that patent portfolio.”
That isn’t Albioni’s only option for RIM. He said a sale might work and suggested the company is worth $60 per share at the moment. He is not attached to RIM remaining a Canadian company. He also believes that it is time for a leadership change. “We are unhappy with the company CEOs being co-chairs. I think the first thing that should be done is there should be an independent chair,” he said. “The second thing in terms of corporate governance is that the board should take a hard look at who is running the firm and who should be running it.” He calls Lazaridis and Balsillie good builders, but said the time has come to hand over the baton. “Initially we were looking at one of the CEOs becoming single CEO. Now we’re thinking that there may be a lot of momentum to appointing a new, transformational leader.”
Klugman disagreed. “I happen to have the privilege of spending time with the leadership of RIM. Is it because we’re Canadians that we don’t think that we can have world-class leaders?” he said. “I don’t tend to support anything along the lines of shifting gears in mid stream. Especially in a year of transition, you need a steady hand on the tiller.”
But with two sets of hands of that tiller, the question remains: where is RIM heading, and will the destination be a profitable one?
Illustration: Jon Berkeley
Also read:
Being a RIM booster keeps getting tougher
RIM should keep its executive suite intact—for now
RIM BlackBerry PlayBook / QNX
There is no tablet war. Apple won
Which is the right tablet for you?
