RIM Investors Sailing On Hope

Feb.29.12 | About: BlackBerry Ltd. (BBRY)

When people lose sight their direction in life, they often wander. Without proper guidance, they sometimes run into unfortunate problems. The same is true of companies, perhaps to an even greater extent. Research In Motion (RIMM) has done just that over the past few years, sailing through rough and unfriendly waters to say the least. They have come very close to an unpleasant fate, with rumors and suggestions of death, sale, or breakup. The question now is whether they have weathered the storm, or if RIMM is in the relative calm before the most powerful part of the storm.

RIMM has been constantly playing catch up, as they have drifted from leading in their industry to following in it. The behemoth successes they have enjoyed in the past are now haunting their present as they struggle to let go and embrace the future. For a time, they hardly realized how close that hull-shattering reef was, or what to do about it. They are a massive ship of a company. And the problem with huge ships, is that while they are impressive vessels, changing course takes a great deal of energy, and does not happen with speed or agility. And even when they do change course, it still must be a good one.

The RIMM ship has been headed for disaster, and instead of being ready for action at the helm with a plan, key leaders seemed to be hanging out poolside on the deck oblivious to faulty navigation. Over the past year RIMM has lost an astounding amount of pretty much every metric there is to judge a company. Market share, shipments, consumer sentiment, and last but not least, capitalization are but a few that have taken on water.

The only things that has significantly increased is subscriber base numbers, up to about 75 million, and hardware and tablet sales. The latter increase, of course,because they did not previously have tablets. Apple (NASDAQ:AAPL), the biggest shark in the water, continue to devour the growing market. Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), and even Nokia (NYSE:NOK) are all chasing after the same school of fish too.

But RIMM has now acknowledged that there are very real obstacles. Admitting the problem is the first step to recovery as they say. Their direction is clearly beginning to change, and the murky underwater dangers may be getting farther away.

So can RIMM fight competitors, satisfy consumers, and grab back their share of demand? They absolutely can if there is still time, and the solution is surprisingly simple. Cash reserves are running dangerously low (around $1 billion) for a company in their position. Another tablet disaster such as the over $500 million write down last year could give rise to cash flow problems. However, RIMM has symbolically, if nothing else, made management changes, and done a good job developing international markets with around 60% of revenues originating outside of the US, Canada, and UK. Positioning themselves to rely on such markets was a life-saving maneuver, as RIMM's US market share plummeted.

But RIMM also needs to get back to basics. Aside from strategically attacking various geographical markets and consumers, it must start doing what its very name implies, and innovate. RIMM received a little reprieve and boost in stock price and negative p.r. over the past couple months with their management shuffle and significant developments such as the release of their OS 2.0. Perhaps they can build on the momentum and start a return to lead their industry as they once did.

AAPL has cooked up truly innovative and products of late, creating new markets as well. AAPL told the consumer what they wanted, then gave it to them. That is in essence what leadership in the tech industry is all about. RIMM once did that, and they need to position themselves to do it again if they want to continue.

It is time to create not just an updated BlackBerry smart phone or tablet that keeps up with the competition, but the next "best" smart phone or tablet. That is the only way for RIMM to sail on after what has turned into an almost perfect storm. Better yet, they need to create something new that has not yet been seen. Buying other companies with hopes of catching up will not get them back to the glory days. And imitating the ideas of competitors just means that they might get to stay in the race, not lead it.

They need to do more research and set more ideas in motion. And moreover their marketing needs to accompany any innovation adequately. Marketing schemes such as suggesting that BlackBerry is for work and competing products are just for play are losing relevance and impact.

RIMM can turn their cruise ship around before hull meets reef and the ship is dead in water, or worse yet underwater. They certainly have the ability, and maybe even enough time. With new products and services pending, perhaps they have already charted the correct course. But they also might be headed for more treacherous waters. Either way, they will likely need to batten down the hatches before their next earnings which post in late March. Earnings results could complete the perfect storm, with negative guidance and increasing short interest (roughly 12% of float, up 16%).

Conversely earnings could pleasantly surprise and become prevailing winds, great for sailing. Over the last year or so, it has been an extended shorting pleasure cruise to the Southern Hemisphere with RIMM. Hopefully in the near future there will be indisputable reason to climb back aboard for the trip back North. But in the meantime, it is looking like a good time for weary sailors to head into port, jump ship, and maybe give their sea legs a respite while the ship does repairs.

Disclosure: I am short RIMM.