With the second quarter of the year at a close, the Nasdaq and the S&P 500 managed to hold onto gains for 2012, being up around 9% and 13%, respectively. The strength was not evident all around, with some of the companies trading well-below their 52-week highs. In particular, Research In Motion Limited (RIMM) fared poorly. Rated in a previous article as a "sell" with a value of $8.35, RIM continues to be a stock to avoid even though shares are 78% below their 52-week high.
Research In Motion dampened hopes for meaningful growth in 2012 when it reported earnings. The company reported a loss, as its sales mix grew for its lower-end devices. Gross margins collapsed to 28%, down from 39.8% in Q4. In Q4, the gross margins included inventory provisions.
The main catalyst for the sell-off post-earnings was the delay in the release of Blackberry 10 ("BB10"). Looking ahead, the BB10 delay is making things more difficult for the company's recovery. Google's Jelly Bean Android operating system announcement last week, along with the Google tablet for $199, will make it even more difficult for Research in Motion to regain any traction.
Research In Motion's shares are being priced to anticipate a fire-sale of the company, an exit in some markets, or an eventual bankruptcy. In any case, the market has no expectation that Blackberry 10 will ever be released. Still, RIM is currently running a "Blackberry Jam" series worldwide with tremendous success, but the BB10 delay has undermined this success.
Research In Motion needs to do a number of things if it wants its share price to stop falling:
1. Explain why Blackberry 10 is Delayed
It is understandable that launching the Playbook when it was not ready was more damaging than it would have been if it were delayed instead. Giving no detailed explanations implies that RIM is not committed to BB10. It gives the perception to the investment community and to developers that the system will never be released. RIM looks as though it is more focused on selling itself. A revised release schedule for the delayed tools and APIs would also benefit developers in their business planning.
In reviewing a leaked roadmap for BB10, it makes sense for RIM to first release BB10 on the Playbook in 2012. This move would give developers confidence that RIM is committed to BB10. Still, Blackberry 10 functionality on Playbook is limited (see below). Upgrades to the operating software on Playbook would also give investors some confidence that the company will meet an already delayed release. The buzz for BB10 phones would then grow more naturally.
2. Release Blackberry 'Alpha' on the Playbook
An 'alpha' release of Blackberry 10 on the Playbook would fuel fresh interest in the operating environment. The release is beneficial, even though BB10 will not run Cascades-based applications on the Playbook.
3. License Blackberry Messenger ("BBM") to Windows Phone 7/8 and Google Android
In order to allow current Blackberry users to be connected to BBM contacts after others leave, Research In Motion should create a BBM application on the Microsoft Windows Phone system and on Android. Earnings generated from licensing BBM though a monthly fee would give investors greater confidence in the value of BBM.
4. Pay Third Parties to Build Apps
BB10 will need to support such apps as those written for Netflix (NASDAQ:NFLX), Skype, Instagram, and Pandora (NYSE:P). RIM should pay these companies to ensure they are supported on the new platform early after launch.
5. Have a Plan 'B'
Research In Motion should communicate a risk management plan that assumes a slow uptake for Blackberry 10 when it is released. A sale of the company should not be considered as Plan 'B.'
6. Offer Upgrade Path for Consumers buying Blackberry 7
Microsoft likely hurt Nokia's (NYSE:NOK) sales of Windows Phone 7 when it announced Windows Phone 8 recently. To avoid a similar fate, Research In Motion should offer a generous Blackberry 10 upgrade discount for consumers buying a Blackberry 7.
The Blackberry 7 is vastly improved over previous releases, but consumers on the older device would not even know it. RIM should work with carriers in North America to aggressively pursue users still on older Blackberry devices. This campaign would help stem the rate of consumers choosing another platform.
7. Focus on Core Strengths in the Interim
Research In Motion is still strong in places like Africa, Nigeria, Middle East, South Africa, and Indonesia. The company has entrenched itself there by expanding into those regions. By opening more stores and growing staff levels in those regions, Research In Motion would be able to improve customer care and response.
BBM Music, which is $4.99 per month, is not a widely-known social app that is available for Blackberry users. In the span of one week, I added 250 contacts, commented on their song picks, and gained access to over 6,500 songs. Research In Motion clearly has pockets of strengths, but needs to focus on them, as also promote them to slow its sales decline as its painful transition continues.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.