RIM’s week from hell — A sign of things to come?

Announcements of impending layoffs, and a share repurchase program are not signs of a healthy company and yet when analysts question RIM’s leadership, Lazardis remains upbeat: “This is fun, as difficult as it gets we are changing the world. Jim and I have the perfect balance to make those difficult decisions.”

Perhaps Lazaridis’s optimism stems from the fact that RIM is no stranger to tough times. RIM has undergone its fair share of retrenchments and stock buyback over the years, and still managed 84% growth in profits over three years despite the recession, consequently being named the world’s fastest growing company by Fortune Magazine in August 2009.

Uncharted territory

What’s different this time? Well, despite RIM’s attempt to appease investors by inflating earnings per share, some investors have had enough, and are walking out. RIM’s stock plummeted a further 22% when markets resumed trading last Friday. RIM’s sixth largest investor, the Montreal-based Jarislowsky Fraser Ltd reduced its holding of its 10.2-million shares by at least half. Panning RIMs uncompetitive consumer market lineup and product delivery delays, the firm’s chairman said in an interview: “They are resting on their laurels.” He also slammed RIM’s product marketing strategy saying: “Steve Jobs is a much better marketer than RIM” referring to Apple’s chief executive officer.

Having once traded at a high of US$140 per share, RIM plunged to US$27.75 from US$35 in Nasdaq Stock Market trading on Friday, the lowest level since Sept. 12, 2006. Since peaking in June 2008, RIM’s shareholders lost close to $70 billion, leaving it with a market capitalization of $13.6 billion yesterday. The 82 percent decline was the biggest among communications-equipment providers worth at least $10 billion in the past three years, data compiled by Bloomberg show. The stock has dropped 52 percent in this year alone.

Adding insult to injury, Dolby is kicking RIM while it’s down. Following unsuccessful negotiations, Dolby issued a lawsuit against RIM last week, seeking damages and an injunction to halt sales of its BlackBerry smartphones and PlayBook tablet over patent infringments relating to “highly efficient digital audio compression technologies which allow manufacturers and consumers to provide and enjoy high quality audio while using extremely limited amounts of transmission and/or storage space for such audio.”

Rounding off RIM’s week from hell, O2, one of the UK’s largest mobile carriers, announced that it “would not be selling” RIM’s tablet. O2 said in an email to its customers “unfortunately there are some issues with the end to end customer experience”.

RIM mentioned during its quarterly earnings call that 500 000 PlayBooks had been shipped, but tellingly, failed to divulge how many were actually sold to customers. When questioned about the PlayBook, Balsillie noted that the launch could have been more polished and the initial product a bit better, but that there wasn’t anything to gain by delaying it, and that much was lost on the media’s representation of the PlayBook.

Balsillie’s point about misrepresentation is valid, but RIM itself is guilty of depicting the PlayBook as both a consumer and enterprise device, when it clearly has an enterprise focus. Despite the PlayBook’s technical strengths, the lack of a bigger app ecosystem and native applications such as an organiser, mail and BBM client, made the PlayBook an awkward consumer option for non BlackBerry loyalists.

Looking ahead

The general consensus is that things are dire for RIM, and some even go as far as to suggest that a takeover might be on the cards. The argument is that RIM’s low share price combined with its unique enterprise position and security advantages could make it a lucrative acquisition target if things get any worse.

It seems a bit early to call it. RIM may be down but they are in no way, shape or form, dead.

RIM’s revenue in the first quarter of fiscal 2012 grew 16% over the same quarter last year and internationally, revenue in Q1 grew 67% year-over-year. RIM’s total cash, cash equivalents, short-term and long-term investments as of May 28, 2011 was US$2.9-billion, compared to US$2.7-billion at the end of the previous quarter, an increase of approximately US$170-million from the prior quarter.

According to a London-based analyst at Sanford C. Bernstein & Co Pierre Ferragu, RIM’s customer base is expected to grow to 77 million by the end of next fiscal year, from 42 million — a quarter of which will be enterprise customers. RIM’s international growth and its existing installed enterprise base will most likely sustain the smartphone giant through its transition to QNX, but time is running out. Their existing product line is a year old, and new products will only come to market in late August 2011.

News surfaced that RIM has been strong-arming several carriers into approving devices they normally would not move through the Technical Acceptance phase. Essentially, RIM has been putting pressure on carriers to approve upcoming BlackBerry smartphones – like the BlackBerry Bold 9900 — despite any problems carriers might report back. If the rumour turns out to be true, it’s clear that RIM is feeling the pressure.

RIM is also asking a lot of its new and existing consumer base. The product line in August will be OS 7 based, which will soon become defunct thereafter, with the introduction of their QNX based handsets.

RIM defends this strategy, by saying that OS 7 devices will become a lower tier price option when QNX is introduced. It feels counter intuitive however and smells of fragmentation, especially when they have been championing “Project Highlander”, an effort to have only one operating system across the board.

If an unwitting consumer shells out for the best RIM has to offer in August with OS 7, only to find out a few months later that QNX trumps OS 7, how would they react?

Having jumped on the bandwagon and thrown so many resources behind the tablet trend, RIM lost its way for a moment. The news that the 4G PlayBook tablets have been delayed actually comes as a relief. The delay could be an indication that resources are being re-allocated to doing what RIM does best, making powerful smartphones in an industry that it helped define.

Let’s hope RIM gets its groove back, before the world loses faith.

*Image courtesy of Donald Kelly