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RIM CEO’s Alternative Universe

James Balsillie, CEO of {complink 4644|Research In Motion Ltd. (RIM)}, must be living in a different world populated mainly by non-RIM shareholders. He believes the company is on a roll, while investors seem to think the Blackberry maker is simply rolling downhill — fast.

On Thursday, Balsillie delivered an optimistic speech during the company's fiscal second-quarter earnings conference call. RIM, he said, was experiencing strong demand for its products. Service revenue climbed to a record $1 billion, and the new “Blackberry 7 smartphones launched on schedule and have been enthusiastically received by our partners and customers for their blend of technical performance and industrial design.”

Sound great? Investors didn't think so. Today, RIM's stock price fell more than 22 percent at the beginning of trading on Wall Street, shaving approximately $3.7 billion off its market value within minutes. Of course, the decline was overdone, and the stock recovered somewhat within the first hour of trading. At the time this report was written, it was down only 19 percent for the day. However, the perception in the investment community is that RIM's top executives are in “blatant denial,” as one analyst put it in a Reuters report.

That's not a huge leap in judgment. Balsillie sounded like a runaway freight train during the company's earnings conference call. In fact, one would have assumed the entire world was mistaken about the challenges facing the company as he pounded away with phrases that indicated he believes RIM is in a strong position and would soon outrun companies like {complink 379|Apple Inc.}, {complink 4751|Samsung Electronics Co. Ltd.}, and other top smartphone and tablet PC vendors.

Here are some telling comments from Balsillie:

Demand for Blackberry smartphones was strong across all regions…
In North America, Blackberry 7 smartphones are having an excellent reception and have driven a meaningful increase in sell-through in the region during the last few weeks of the quarter and so far in September…
Asia continues to be a strong and growing market for Blackberry smartphones, and the Blackberry Playbook was also launched in the region during Q2. Key carriers and retail partners in the region are supporting Playbook with advertising support, prominent in-store displays, and attractive bundle offers with Blackberry smartphones and accessories…
RIM's balance sheet remained strong with a cash position of approximately $1.4 billion…
Driving cost efficiency and managing the organization's structure is a continuous process, but we feel we have made tremendous progress and are confident the teams we have in place can successfully meet the future needs of our Blackberry community and execute on our transition plan.

That was the view from Planet Balsillie. Shareholders and investors have a different take on the company's competitive position. Analysts had projected RIM would report revenue of approximately $4.47 billion for the quarter that just ended. Instead, it posted $4.17 billion, down from $4.91 billion in the preceding quarter and a decrease of 11 percent from $4.62 billion in the same quarter last year. The gross profit margin fell to 38.7 percent from 44.5 percent in the same quarter in 2010, and cash and short-term investments slipped to $1.2 billion from $2.1 billion. (The company spent $750 million on its joint purchase of Nortel patents, but the decline still indicates cash from operations was essentially zero.)

Investors also didn't like the fact that RIM shipped only 200,000 Playbook tablet PCs in its fiscal second quarter, down from 500,000 units in the immediately preceding quarter. They were also worried the sequential decline of 5.2 percentage points in the gross profit margin could become permanent.

Finally, if Balsillie's optimism about RIM's future was based on more recent developments, such as the introduction of the Blackberry Bold 9900, the wariness and skepticism from shareholders rests on divergent, deepening concerns about the ability to compete successfully against the likes of Apple and Samsung.

Again, it's hard to fault the shareholders dumping RIM's shares. Balsillie sees a half-full glass in the company's $1.2 billion cash pile, but investors see a near-empty cup when they juxtapose RIM's position against Apple's. When your shipments are falling, cash is low, margin pressures are intensifying, and a major product launch (Playbook tablet PC) fails to ignite the customer base, how can you seriously and convincingly argue you are a viable competitor against a rival with $75 billion in the bank and a lineup of products that keep flying off the shelves?

24 comments on “RIM CEO’s Alternative Universe

  1. AnalyzeThis
    September 16, 2011

    While I think it's important for top leadership of the organization to stay positive and try to put an uplifting spin on things, there's a big difference between being optimistic and losing touch with reality. Balsillie does indeed seem to have boarded a spaceship at some point.

    I don't like how Balsillie kind of tiptoes around the failure of the Playbook. Yes, it launched in Asia. Yes, key carriers and retail partners are supporting it. Yes, there are bundle options. But is it selling? Is it a good product? No, not really.

    And the fact RIM only shipped 200k Playbooks in Q2 is kind of an irrelevant number because it's unlikely the Q1 shipment was even close to selling out. You can ship all the units you want, it doesn't matter if they're just collecting dust. I'm near certainly a token amount of product will be shipped in Q3.

    Anyhow, RIM is not a viable competitor to Apple or Samsung at this point. That's crazy. If they don't dump the tablet idea and focus on reviving their dying line of phones, Balsillie won't be on this conference call next year.

  2. mfbertozzi
    September 16, 2011

    DennisQ, I was thinking specifically about your sentence inside last section of the post.

    Anyhow, RIM is not a viable competitor to Apple or Samsung at this point

    It is true, definitely. But three years – five years ago, maybe anyone imagined Samsung could become a competitor for Apple, as of today. It happened. When RIM launched its services and started its business, maybe other players as Google for instance, wasn't so used at large. Competion is really changed due to difference mix of players. This is another point to consider. If done it, I believe RIM has strong capabilities for recovering.

  3. AnalyzeThis
    September 16, 2011

    @mfbertozzi, I get what you're saying about Samsung being in a different position five years ago… and that's true… but what exactly do you think are RIM's “strong capabilities for recovering?”

    What advantages do they have at this point? What wise strategies are they currently pursuing? Who is their dynamic leadership? What recent product of theirs was/is an absolute blockbuster? I'm sorry, but I'm really not seeing much in the way of potential here…

  4. _hm
    September 16, 2011

    It was Nortel and now it is turn for RIM. RIM should soon look for suitable partner and merge to survive in this turbulent market. Amaozn, Google may be good choice.

     

  5. mfbertozzi
    September 17, 2011

    @DennisQ: you are right, definitely. Currently it seems they are not in a good position. Anyway the have demonstrated in the past capabilities to achieve a leadership in technology and market. Maybe it is the time to re-focus the strategy and to change management really focused on pragmatic results. It seems something is happening: “enterprising minds” program, launched these days, shows they would like to create a new form of relationship with customers in the area of business.

  6. Wale Bakare
    September 17, 2011

    mfbertozzi,

    All said. And I shared your view at same time. Smart devices market's competitiveness has been so fiercier in this year coupled with current global financial crisis as well as patent infrigment legal battles.

    RIM's smartphone market, for me i think OK but its tablet PC – not up there.  Investors's point of view, RIM be close rivary to Apple's – iphone and ipad rather than Samsung's smart devices which is not happening. I think, Android contributing factor is primarily reponsible for the “Competion is really changed due to difference mix of players”.

     

  7. JADEN
    September 17, 2011

    I think the major cause of RIM recent negative growth in the market share is pointed to Playbook tablets.  Being their first tablet but was a total dissapointment, with a good start of of their Blackberry 7 device, hope they will rebound.

  8. Anne
    September 17, 2011

    What RIM needs is fundamental change in their strategy, until then they will still be facing some formidable opponents in the global smartphone market because those ones are not relenting on their products, iphone5 is on the way.

  9. Anand
    September 17, 2011

    If done it, I believe RIM has strong capabilities for recovering.

    @mfbertozzi, I am not sure if RIM can recover from this stage. I guess it would be better for RIM to plan for a merger. We all know what happened to hp's tablet business. Competition in smartphone and tablet market is very intense and RIM alone cannot fight the battle.

  10. itguyphil
    September 17, 2011

    Their strategy needs to be HOLD ONTO THE ENTERPRISE. If they lose this, they are done!

  11. Houngbo_Hospice
    September 17, 2011

    @anandvy;

    “I guess it would be better for RIM to plan for a merger.” 

    Which company do you think RIM should associate or merge with? According to this article, RIM has four options to chose from:

    1 – One of the other smartphone players will buy RIM like Google bought Motorola.

    2- RIM will spin off its IP (Intellectual Property ) holdings or its logistics and solutions division into a separate company.

    3- Google’s purchase of Motorola will throw the Android ecosystem into chaos. That will give RIM time to catch up, regroup and pick up the pieces. 

    4- RIM will enter into a strategic partnership with one of the other big tech companies.

     In my opinion I don't think RIM is ready to be “sold” yet.

  12. Houngbo_Hospice
    September 17, 2011

    @pocharles:

    The truth is that RIM is already losing its hold on enterprise market. According to this 2010 article, enterprises are already prefering other platforms such as iOS and Android.  3/4th of the firms surveyed at that time were using iPhones, Windows Mobile and Android run devices to access their email on the go.

    That is why RIM needs to come up with a new strategy to investigate other markets to remain viable.

  13. Houngbo_Hospice
    September 17, 2011

    RIM and HID Global are teaming up  “to enable users of new versions of RIM's Bold and Curve smartphones to tap them against a reader to gain access to their workplace or other controlled area.” In other words, the Bold will allow enterprise employees to use their smartphones in place of access cards. This is not a new idea, but RIM handheld devices are known to have good security features that are needed in such case.

  14. Anand
    September 18, 2011

    Which company do you think RIM should associate or merge with? According to this article, RIM has four options to chose from

    @Hospice_Houngbo  In my opinion option 4 looks the best. i.e “RIM will enter into a strategic partnership with one of the other big tech companies”. I guess companies like Intel can use this as opportunity to directly enter smartphone market.

  15. mfbertozzi
    September 18, 2011

    WB, I agree with you. RIM delivered a good solution “email-centric”, but recent competion that Android is bringing on the market, changed services for users, moving forward “apps-centric”. Once arrived, it was a blast and (imho) RIM didn't plan and conceive enough, steps ahead, in order to renew its solution.

  16. Anna Young
    September 18, 2011

    @ Wale Bakare,  “Competition is really changed due to difference mix of players”. 

    I  appreciate your view on the current position of smart devices markets and all. However based on the article contents and the state of competition status for RIM against Apple and Samsung, particularly if the shareholders view and that of RIM's CEO are not the same, would you suggest an acquisition?

    Bolaji wrote, “Balsillie sees a half-full glass in the company's $1.2 billion cash pile ( plenty of cash though), but investors see a near empty cup when they juxtapose RIM's position against Apple's”

    I think for RIM to survive and compete successfully against the likes of  Apple and Samsung in the current global financial crisis as you put it, RIM will need to come up with a strong workable and viable strategy. As it stands, “Balsillie is in blatant denial” Is he capable of driving a change? Your thought?

  17. itguyphil
    September 18, 2011

    The problem with that is, their bread & butter was the enterprise. Consumer target market was secondary. Now it looks like they are targeting the consumer as the primary. That is a major downshift. The only way I see them staying viable is by drastically slashing expenses and making some really compelling marketing efforts.

  18. SunitaT
    September 19, 2011

    RIM delivered a good solution “email-centric”, but recent competion that Android is bringing on the market

    mfbertozzi, I totally agree with you. BlackBerrys are still prized for their e-mail capabilities, particularly among government and corporate customers who rely on the devices’ tight security. But it is increasingly common to find people who carry a BlackBerry for e-mail and an iPhone for everything else.

  19. mfbertozzi
    September 19, 2011

    Well Anandvy, you have made a good analysis: smartphone & tablet market is very congestioned, right now. All over, companies from hardware and software and trying to play the game in that sector. Despite that, RIM has demonstrated in the past its leadership and capabilities and in my previous posts, I was meaning maybe also in the future, people from RIM, have the talent for recovery. One of key step, for example, is to enforce communication channel between them and enterprises (their most important market). Recent announcement of “Enterprising Minds” program could be an initial small step for backing on track.

  20. jbond
    September 19, 2011

    RIM's biggest selling point has always been its usability for business and email. They are losing out on their business customer’s every day. As more companies allow their employees to use other platforms to access their servers, Blackberries are becoming the veteran player whose time in the field is getting cut short. Unless RIM can come up with something big and continue to build off of new ideas, RIM is destined to disappear.

  21. Houngbo_Hospice
    September 19, 2011

    RIM is facing competition in the enterprise market and it would be suicidal not to look on the consumer side to try to balance things. RIM has already started slashing expenses with the recent job cuts. But would that be enough? Not likely.

  22. mfbertozzi
    September 19, 2011

    @HH: at the end of day, it seems something is changing. After having announced “enterprising minds” program, they have announced the evolution of QNX technology a deep details on innovation will be presented next month at the coming event RIMDevCon. Maybe at that time, the picture will be more clearer then now. Present announcement is made by Lazardis, not by Balsillie. Is  this due to random reason?

  23. Taimoor Zubar
    September 19, 2011

    There's no doubt that RIM's CEO is living in his own dreams. Optimism is good, but only to an extent.

    As far as the problems with RIM are concerned, I think they are majorly because RIM failed to see the market landscape changing. Blackberry was at it's height of success when the business devices were separate from consumer devices and there was very little intersection amongst them. With the market conditions today, consumers no longer want to have business phones as separate tools. They are looking for all-in-one devices that are cool and trendy to carry along, yet powerful enough to use for business applications. I don't think Blackberry really stepped up to meet that needs. Instead, it only focused on keeping the business users at hand and this is why they kept losing customers. I agree that Playbook is a step towards combining business and fun together, but it may be a pretty late move.

  24. Mr. Roques
    September 19, 2011

    I've gone to Canada but maybe he lives in an area where they only allow good news in newspapers! 

    I just love this article titled: All The Dumb Things RIM's CEOs Said While Apple And Android Ate Their Lunch … it pretty much explains the philosophy in RIM, total denial.

     

     

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