Research in Motion (RIMM) has done it again. For a third consecutive quarter, the company missed earnings badly, and for the third straight quarter investors were punished with a double-digit percentage drop in the stock price.
While I do not quite enjoy the vindication of my esteemed Seeking Alpha colleague Rocco Pendola, who has consistently and correctly predicted RIM's struggles, I did note back in June that RIMM was a classic value trap, and steered value investors away from the stock, despite its gaudy P/E and balance sheet numbers. My reasoning at the time was simple: Research in Motion was not a value play, but a turnaround story. As I noted in that piece:
Value investors look for stocks that are unnoticed and underappreciated. RIM has been one of the most covered, most discussed, most noticed stocks in the world in 2011 (at least 56 analysts cover the stock, according to Reuters Finance.) With the litany of bad news, and misstep after misstep with the Playbook, and the Bold, and QNX, even RIMM bulls would be hard-pressed to argue that the company, or its management, are underappreciated right now.
What I left unsaid was my belief that RIM management -- and particularly its co-CEOs, Jim Balsillie and Mike Lazaridis -- were ill-equipped to manage a successful turnaround of the company. Their litany of recent missteps and public embarrassment is seemingly endless:
- In June, a senior executive published an open letter to Balsillie and Lazaridis, begging the two to implement immediate and drastic changes in the company's culture. "No one in RIM dares to tell management how bad are tools are," the anonymous employee wrote. In a prescient note, he also said, "we simply must stop shipping incomplete products that aren’t ready for the end user." (More on that later.) In case anyone thought the letter was the work of a lone disgruntled employee, two more letters were published the next day, chosen from "dozens" of letters sent in after BGR published the original manifesto. RIM responded with a rambling statement that, in BGR's own words, "wasn’t pretty, and really didn’t address a single point that was made by the original plea."
- Two weeks later, BGR runs another piece detailing RIM's struggles. The money quote: co-CEO Mike Lazaridis repeatedly announcing, "There will never be a Blackberry with an MP3 player or a camera." The article also details epic shouting matches between the co-CEO's, noting that "stories of explosive fights bleeding out into the hallways and even lunch spots in Waterloo have filled Research In Motion."
- The company's new Playbook tablet sold just 200,000 units in the second quarter, below the consensus estimate of 490,000 and fiscal first quarter shipments of 500,000. This after Balsillie said on the Q1 conference call: "We don't have specific numbers on PlayBook sell-through, but we're very pleased with the sell-through, and we're very pleased with the seeding in the corporations." The company now must offer discounts and rebates to move remaining product. The biggest complaint about the Playbook? It initially shipped without an email program. (Remember the complaint about "shipping incomplete products"?) Those updates were originally expected in September, and have now been moved back to October.
- The company's much-vaunted QNX-based "superphones" have been delayed repeatedly. The phones are now expected to be released in the first quarter of 2012, with a single-core CPU (unlike faster, multi-core products from Samsung, Motorola, and Apple) and without support for the company's Blackberry Exchange, requiring additional software for corporate email -- the same initial issue that hindered Playbook sales. (Apparently, they still haven't stopped "shipping incomplete products".)
These are just a few of the missteps; indeed the 70-plus percent drop in market cap and the massive drop in market share are directly tied to the company's failure to produce a smartphone that can compete in the North American market with products from Apple (AAPL) or manufacturers using the Android platform from Google (GOOG). Even most RIMM bulls acknowledge this.
But there appears to be no hope for a turnaround, not with Jim and Mike running the show. Shipping a tablet without native email is a marketing error of historic proportions -- no matter whether the device is targeted to corporate or personal customers, email is simply critical. This was Balsillie's response from the Q2 conference call, per Barron's:
“We’re planning to launch a major software upgrade for PlayBook,” he said, “which will deliver highly anticipated new capabilities and applications which we expect to reinvigorate sales.”
An email program is not an "upgrade". It is a "requirement."
The RIM co-CEOs simply appear out of touch, and out of ideas. The constant cheerleading on the conference calls which inevitably oversells results, the endless delays in tablets, coding, and the QNX platform, the destroyed employee morale; investors simply cannot put their hard-earned money, and their confidence, behind executives who are no longer capable of properly running this company. Amidst all these issues -- product delays, employee results, and a decimated stock price -- RIM's major initiative announced in the last 12 months was to launch a $5-per-month music service for the Blackberry. Apparently, the company that cannot compete with Apple or Google is now intent on competing with Pandora (P), Spotify, Sirius XM (SIRI), and the other half-dozen music streaming providers out there.
There is no hope for RIMM investors under current management, and little hope for a change. Mike and Jim founded the company, and the board of directors has shown little interest in holding them accountable for the recent stock slide. Back in June, the RIM board heard a proposal from shareholder NEI Investments, which recommended splitting the co-CEO and co-chairman position. The company negotiated a settlement by which a committee of the board would investigate the feasibility of such a split, and the efficiency it might promote. Their deadline for a response? January 31, 2012 -- eight months after the initiative was announced. Given RIM's recent track record on rollouts, you can bet that report will be delayed as well.
Last week I commented on an article here on Seeking Alpha about RIM. My point was simple: the best thing that Balsillie and Lazaridis could do for RIM stockholders is to quit. Immediately. With the company's current market cap around $14 billion, their resignation would likely create close to a billion dollars in shareholder value. Instantly. That's all you need to know about RIM's current management, and all you need to know to stay well clear of this stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.