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Reverse in Motion

{complink 4644|Research In Motion Ltd. (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.

30 comments on “Reverse in Motion

  1. DataCrunch
    June 17, 2011

    RIM still has a hold on enterprise corporate users, although they have lost momentum with a downward trend.  They need to hit it out of the park with their new line up of smart phones.

  2. t.alex
    June 17, 2011

    The title is descriptive enough about what is happen to RIM 🙂 i guest even corporate users are shifting to Apple as well. What's left for RIM? Their products are a bit cooler than Nokia it seems.

  3. Anna Young
    June 18, 2011

    Let's hope Jim Balsillie is correct in his analysis of the current situation facing the company when he said,

    “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.”

    In the CEO’s own words RIM has the chance to see a”strong growth” in the latter part of 2012 fiscal year.

     

     

  4. Clairvoyant
    June 18, 2011

    Wow, I didn't realize it was getting this bad for RIM!

  5. Taimoor Zubar
    June 18, 2011

    From what I see, the biggest mistake RIM made was to confine itself to a particular sector and ignore all the others. Blackberry is only a corporate toy and RIM was more than happy to restrict it to that only. On the other hand, there were major shifts in the consumer preferences in the smartphones market which RIM failed to respond. Corporate executives no longer want to keep 'business' phones with them. Since the cool, stylish models by Apple and Android are offering the same features that Blackberry phones do, the consumer's choice naturally shifted towards them. If RIM wants to resurrect itself, it has to stop restricting itself to the corporate market and expand towards other types of customers.

  6. mfbertozzi
    June 18, 2011

    I agrre with you Dave. RIM is facing crisis as happened for several vendors which act in that market (including Nokia), anyway just be pragmatic: as of today, does an alternative worldwide service to Blackberry exist? This is a very solid base for them to launch a new business era.

  7. AnalyzeThis
    June 18, 2011

    I was once one of RIM's biggest supporters. I believed that BlackBerries are the best option for enterprise users. I thought and that the PlayBook would be a quality product and the obvious tablet choice for corporate users.

    Now of course it's obvious that the PlayBook was rushed, released too early, and not very good. And RIM seems to have no clue on how to market it. Trying to pitch it to the consumer market seems like a very poor strategy; they just can't beat Apple in that battle.

    I'm not sure what to think about RIM's future, but I do believe they need to refocus: if they're going to stay in the tablet space, focus on the enterprise user, not the consumer. And if they want to compete in the consumer smartphone market, they better start making some more exciting phones. But most importantly, RIM needs to focus on what they used to do best: providing the best mobile communication platform for large businesses. RIM is starting to lose their grip here.

    If they are unable to do this, I think the company will not exist in 3 to 4 years.

  8. Nemos
    June 18, 2011

    Bad news for RIM, I don't think it will help only one optimistic statement, if you can read the numbers clearly something is going wrong. I believe in not to follow the markets with blind eyes, but also it is a huge mistake to ignore them.

  9. Anna Young
    June 18, 2011

    Nemos, you're right, mere statement of assurance from the CEO, Jim Balsillie is not sufficient to make amends or re assure its customers and stakeholders. It is clear that RIM is in troubled waters and would need to re strategize if it's to see its sales and profit margins improve in 2012.

  10. DataCrunch
    June 19, 2011

    Hi DennisQ – Good Technologies has been gaining steam on enterprise activations on Apple and Android devices, especially in the last year.  Although from what I have read and heard, their platform is still not as elegant as RIM’s BES, but it is making significant progress.  Corporations now have a viable option for secure messaging and policy administration that can be used on non-BlackBerry devices. 

    Here’s a recent activations report from Good that highlights enterprise activations between Apple and Android devices.  Clearly iPhones are penetrating at a higher rate into the enterprise:

     

  11. AnalyzeThis
    June 19, 2011

    @Dave, that's pretty interesting! And Good is exactly the type of thing that RIM really, really needs to worry about. I'm not sure if Good is going to be the solution that wins out in the end, but something similar (but likely more elegant from perhaps a bigger, more trusted brand) could really hurt RIM deeply, taking away their most lucrative customers.

    And you also indirectly bring up the other challenge RIM faces: even though many enterprises still like RIM and BES… the employees generally don't. They want iPhones or Androids. The security issues are irrelevant to them.

    Anyhow, thanks for pointing that out Dave… I didn't realize Good was as far along as it apparently is.

  12. DataCrunch
    June 19, 2011

    @DennisQ – In terms of a bigger company, there's also Microsoft's Exchange ActiveSync, which also has a lot of capabilities and competes in this space.

  13. Himanshugupta
    June 19, 2011

    @TaimoorZ, though you have a valid point that RIM should not have confine itself to a particular segment/sector but i think that RIM should have instead add value to its product to keep their strength i.e. corporate sector. This strategy helps in the bad times like these. What Apple did was more or less like this. 

  14. Houngbo_Hospice
    June 19, 2011

    “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.”

    That's true. But another reason is that they were not quite prepared to face such competition from Apple and Google. One thing is to realize that you are in trouble, and another thing is to know how to get out with an adequate and timely strategy.

  15. AnalyzeThis
    June 19, 2011

    @Dave, have you ever adminned Exchange? Because I think if you had, you wouldn't have suggested it as a viable competitor to RIM 🙂

    Sorry, just not a big fan of Exchange at all. And neither is the company I recently started working at; they're in the process of moving off of it.

  16. DataCrunch
    June 19, 2011

    @DennisQ – I have not administered Exchange, but I have worked in companies that have internally hosted Exchange, as well as on a SaaS model.  I do recall my IT departments being fond of the security capabilities.    BTW, what is your company switching too?

  17. Wale Bakare
    June 20, 2011

    Its Blackberry smartphone is still wildly popular in developing markets, . In butressing that, am currently in Africa, my observation in this region shows that Blackeberry smartphone commands over 70% of the market. For instance, Nigeria largest Africa market for OEM and others, country with population over 150 million. There, if you are a student either tertiary or college not on Blackberry such person is not part of the world. My market survey in this place shows that if you not are trading in blackberry no one looks your side.

    Am opinion that, RIM should foucs in region where its products gaining market momentum to invest by building or developing on its market strong place. Something Nokia had taken boldly steps to achieve.

  18. eemom
    June 20, 2011

    The blackberry once dominated the smartphone for business users.  Now, that market segment has shifted to Apple's iPhone since it deployed with Verizon.  As you stated, the Android market is also growing and presenting formidable competition to Blackberry.  I do see RIM in the same boat as Nokia, they both missed the market shift without producing products to address it.  While RIM can recover while its products see healthy growth overseas, the product they introduce this summer has to possess key features that leap the competition in order to gain back some of their market share in the leading market products.

  19. Ariella
    June 20, 2011

    With respect to apps, Blackberry is still considered worth designing for. Starbucks has an app for purchases via phone that work with the iPhone and for Blackberry, not yet for Android, as far as I know.

  20. Ms. Daisy
    June 20, 2011

    Himanshugupta:

    You are right on what RIM needed to have done. The question is why have they not done these things to stay afloat even if they are no longer leading the pack?

    Its unfortunate that RIM is getiing pounded all around. We quickly forget how the blackberry was the one to beat, before its managers started to sleep at the post and literarily imploded.

     

  21. Parser
    June 21, 2011

    I think, and I will try to avoid saying “RIM should”, that focusing on developing markets will not bring stunning features to RIM’s offering. Presently consumer is looking for Apple/Google copy cats or something out of this mind. Having a company wide brainstorm session would bring something new. Yes it hard to come up with something different and outstanding, but it is not impossible. 

  22. Jay_Bond
    June 21, 2011

    I find this article somewhat troubling as a current Blackberry user along with my wife. I have also had an Iphone, which is great in itself, but still more like an implement for entertainment. RIM has been on the top in the business world for a long time. Their phones have always made sure that business professionals can have access to multiple email accounts, spreadsheets, document writers and anything else an on the go person needs. Yes, there have been some failures across the handset line. I can only hope that there are some serious discussions companywide to keep RIM going in the right direction and stay a serious competitor in the business and mobile marketplace.  

  23. hwong
    June 22, 2011

    Unfortunately, RIM is given a bad reputation nowadays mostly because of the user interface and limitation. Unless they make a big breakthrough with their products, I think that their product is still going to have a difficult time to get their market share back.

  24. Mr. Roques
    June 22, 2011

    The numbers can be misleading because the market is still growing pretty quickly so the sales are going to be up but the market share is showing that RIM is falling behind. 

    That could be because users are migrating from RIM to Apple or Android. But it could also be that new users choose Apple and Android over RIM. 

    Apple is coming out with a messaging system, WhatsApp, Live Profile and other 3rd party systems are booming. 

    What holds together RIM? (IMHO)… security. It's the place to go for the corporate world. Android is lacking a lot.

    We'll have to wait and see.

  25. bolaji ojo
    June 22, 2011

    @Mr. Roques, You nailed it. Research in Motion isn't in trouble because it isn't growing relative to its previous performance. It is sliding because it is not growing fast enough and winning market share against rivals. In this market, you cannot measure your performance by holding up a stick against yourself. You evaluate your performance based on how the competition is doing. Right now, RIM is not stacking up well against Apple, period.

  26. Hawk
    June 23, 2011

    @Jay_Bond, I think you just outlined several reasons why RIM might be a great acquisition target for a stronger competitor.

  27. Hawk
    June 23, 2011

    @Ariella, Developers are hardly likely to dump Research in Motion. The company is still a major player in the smartphone market and it's unlikely corporate users will abandon it. What the company must do is not let the competition leave it behind. If it can focus on keeping up and then find ways to distinguish itself in the market it will survive. I'll be blogging soon on how I see things playing out in the market.

  28. bolaji ojo
    June 23, 2011

    The competition is heading both ways. Enterprise players are expanding into the consumer sector and Apple, which started in consumer, is rapidly gaining customers in the enterprise market. This was inevitable; if RIM didn't anticipate the competition in its key market segment then the company is paying a price for being laid back.

  29. Ariella
    June 23, 2011

    @Hawk looking forward to seeing it. I take it you mean blogging here on EBN.

  30. Mr. Roques
    July 18, 2011

    I think the long term winner will be Android and Apple will continue to have a niche, as it does with their core business.

    RIM will have to settle with … whatever's left.

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