Research In Motion: The Real Story Behind Its Sad Ending

| About: BlackBerry Ltd. (BBRY)

Research In Motion (RIMM) is rewriting history. Or perhaps maybe it’s just writing history. We know that it recently had to write off $500 million of its PlayBook inventory. In early July a letter from a high ranking RIM employee addressed to Jim Balsille and Mike Lazaridis was leaked where clearly this individual from inside the company saw the “writing on the wall” and expressed concern. Clearly, there has been a lot that have been said and written about the company.

But however you wish to phrase and define the company’s current status, there is no mistake that RIM will be dissected and studied in business schools for many years to come. In the same era, where Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) continue to defy logic and all common sense by systematically pushing all the right buttons, remarkably, the management at RIM appears to not know where any of its buttons are – if it did chances are it would likely “pull” instead.

The RIM story has become one where investors already have a great sense of how it is going to end - there is really no scenario that suggests that a happy conclusion is remotely possible. The suspense in this sad episode has been gone long before the thrill grabbed its hat and coat and waved “au revoir,” never to be seen again.

Writing Off the Quarter

On Thursday, the company reported its Q3 fiscal 2012 earnings results. Co-CEOs Jim Balsille and Mike Lazaridis announced that effective immediately they will cut their salaries to $1. This comes after they disappointed investors with more putrid results and a disappointing outlook. RIM said that shipments of BlackBerry handhelds this quarter would fall by a greater amount than the Street expected, perhaps dropping to a range of 11 million to 12 million units, below estimates of 13 million to 14 million. But it did say that “they will leave no stone unturned” to fix what ails the company. Just when I thought that they had stopped trying, it was nice to get that reassurance. Let that be a warning to Apple that it better watch out.

Writing RIM’s Reality

There are many articles that proclaim “ABC company will be the death-knell to XYZ firm.” Very rarely does any of this come true. We have heard that Pandora (NYSE:P) would mark the end of Sirius XM (NASDAQ:SIRI), and even now we read that the Kindle Fire will demolish the iPad – all of that remains to be seen. But whoever suggested that Apple’s iPhone would launch an assault of RIM and ultimately kill its fate certainly got it right.

I love watching mafia movies where the main “wise guy” gets himself in a predicament and knows that it is his time to go – it’s in the rules. As he’s knelt down in execution style, he embraces his fate and his life starts flashing before his eyes. All the while, he’s reflecting on how things got to this point. This is RIM’s reality and the question is, how did it get here?

Writing its Autopsy

RIM had a monopoly over the enterprise and its biggest challenge was to preserve it. It simply could not meet that challenge. For years, it maintained that enterprise monopoly for no other reason than the fact that its Blackberry email service was not only readily available, but also proved to be more secure. But that started to shift once iPhone and Android devices got in on the action. This forced corporate IT departments to now consider an alternative to the Blackberry – which ultimately was the chosen route based on RIM’s current numbers.

This enterprise trend toward iPhones and Android devices was further exacerbated by RIM’s faulty hardware, poor software and an egregious mistake by failing to join the wave of new developers until five years after it had already fallen behind. All of this was caused an eroding enterprise customer base. The monopoly was over. Once it left, then a reputation for poor innovation arrived, and we haven’t even discussed the consumer market yet. These mistakes were all at its once bread-and-butter enterprise customer base.

At one point the Blackberry was the thing to have if you were considered semi-important. Now, it’s embarrassing to admit that you have one. But even when it was “cool," not everyone liked it. To some, it was forced upon them by their employer. Now these same employers are offering iPhones and phones with Android. Now many investors who were in love with RIM and their Blackberry phones wish they could have spotted this trend when the stock was in the $80s. This is similar to the concerns that have impacted Nokia (NYSE:NOK).

Writing RIM Fairy Tales

I am now seeing articles where the discussion is whether RIM has now become cheap or has it reached its bottom? The sad reality is that ship has passed. International growth was to be an area where the company could rest its hat, but clearly it was short lived. Those markets have now started to show the same level of erosion that North America has shown over the past several quarters.

Does anyone really believe that RIM as three years left or even two? Over the past several years it benefited immensely from an enterprise monopoly that is no longer available. How can investors now realistically expect the same results? Not only has this fairly tale become too popular, it seems that RIM’s management continues to operate as if a return to prominence is remotely possible. But Wall Street is not buying it and knows that the numbers will only get worse as seen in the recent downgrades today:

  • Canaccord Genuity cut its price target on RIM's U.S.-listed shares to $15 from $18, citing the delay in the launch of BlackBerry 10 to the second half of next year and the company's plans to increase sales and marketing expenses to help sustain interim sales.
  • The price target on RIM's U.S.-listed shares were cut to $14 from $16 at Barclays, to $12 from $15 at Citigroup and to $8 from $10 at National Bank Financial.


Rest in peace!

Disclosure: I am long AAPL, SIRI.

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