BlackBerry (Nasdaq: RIMM; Toronto: RIM) is in serious trouble, and unless something is done soon to stem the ongoing slide, the company that revolutionized corporate messaging with its Blackberry device may become a minor player, even in the markets it still dominates.
How bad is the company's current situation? Let's first review market reaction to RIM's latest quarterly results announced Thursday before diving deeper into what ails the Canadian OEM. Its stock price tumbled 21 percent today to $27.17 from $34.37, shaving about $4 billion from its market capitalization in a single day. As if that wasn't bad enough, several analysts dropped their ratings on the company, and a few even warned that the latest decline in market value was not steep enough.
RIM had on Thursday announced weaker-than-expected first quarter results and also warned that second quarter revenue and gross margin would trail expectations. It also said in a statement it would "begin a program to streamline operations across the organization, which will include a headcount reduction."
Here's how co-CEO Jim Balsillie described the company's first quarter performance and outlook:
Fiscal 2012 has gotten off to a challenging start. The slowdown we saw in the first quarter is continuing into the second quarter, and delays in new product introductions into the very late part of August is leading to a lower than expected outlook in the second quarter.
The first quarter results were not as horrible as investor sentiments might seem to portray. in fact, RIM's sales grew year-over-year, although gross profit margins and net income declined from the comparable year-ago quarter and sequentially. In addition, RIM is still a formidable player in the smartphone and corporate messaging markets. Its Blackberry smartphone is still wildly popular in developing markets, and the company shipped 500,000 tablet PCs in the first quarter.
With approximately $3 billion in cash, short-, and long-term investments, RIM isn't in danger of disappearing and can muster the resources to fight back as Balsillie rightly pointed out:
RIM's business is profitable and remains solid overall with growing market share in numerous markets around the world and a strong balance sheet with almost $3 billion in cash. We believe that with the new products scheduled for launch in the next few months and realigning our cost structure, RIM will see strong profit growth in the latter part of fiscal 2012.
That optimistic outlook may run against a harsher reality. RIM's products are not competitive enough against what is available in the market today, which explains investor pessimism about the company's future. The company is losing market share not only to Apple but also to competitors deploying the Android operating system from Google.
What is most frightening to observers of RIM and European rival Nokia is that both companies seem to have vastly underestimated the seismic shifts occurring in their business segments. They were both so dominant in their separate market segments for so long that they did not see the dark horses creeping up on them.
The rapid reverse of RIM's fortunes is painful to watch. I hope that whatever Balsillie has in mind will help bring the company back to life.