Rebound or Requiem? A SWOT Analysis of Research in Motion, Weaknesses
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Research in Motion (NASDAQ: BBRY) plans a launch of its latest smartphone, the BB10, in January 2013. Much is riding on the success of this launch. From its heyday in 2009-2010, Research in Motion (RIM) has suffered a steady deterioration of customers, earnings and stock price. Recently, Goldman Sachs (NYSE: GS) rated RIM a buy, citing a 30% chance of success for the BB10 and associated financial benefits. National Bank Finance similarly rated RIMM a “Buy.” Others forecast continued declines in earnings, perhaps following a short-lived pop after the launch of BB10. In this Part 3 of our SWOT series "Rebound or Requiem? A SWOT Analysis of Research in Motion," I’ll look at the weaknesses RIM must address to reverse its recent slide.
Glaring Weakness #1
RIM is losing market share and money. RIM has been losing money for the past three quarters as customers opt for other smartphones and tablets. In 2009, the Blackberry Storm smartphone rolled out. Hailed as the iPhone killer, the product failed to stop or slow the iPhone juggernaut. It’s been downhill ever since. The BB7 launch in 2011 failed to generate traction and revenues. Market share for Blackberry smartphones deteriorated to less than 5%. Earnings suffered. In February 2011, the company reported earnings of $1.78/share. By November, earnings dropped to $0.51/share. The next quarter reported a loss. The latest quarter reported a loss of $0.45/share, an improvement over the $0.99/share loss the previous quarter, but hardly reassuring. Consequently, layoffs have been announced as RIM tries to control costs. While this may have helped short term corporate finances, there is a downside to layoffs. Time will tell if these layoffs help or haunt the company.
RIM depends on government purchases for a significant chunk of its business. And Uncle Sam has recently announced a "bring your own device" policy that may cut these bulk purchases. Currently, about one million government customers own Blackberry smartphones courtesy of Blackberry’s security features. That could soon change. Multiple government agencies, including the Defense Department decided their employees could choose other smartphones other than Blackberry. The launch of BB7 saw approximately 70% of government customers upgrading their smartphones. RIM needs similar results with the BB10 launch. However, given the two year delay in launching BB10, RIM has ceded much market share to Apple and Android smartphones. Luring those customers to BB10, especially with a growing “bring your own device” trend in businesses and government, could prove difficult.
Many believe the fortunes of the entire company rest on BB10. This is a problem. The BB10 should have launched two years ago. By all accounts, the BB10 is a cool device. Unfortunately, Apple (NASDAQ: AAPL) and Samsung smartphones are cool devices, too, and people have been using them for two years now. As mentioned above, convincing customers to leave their current smartphones for a new unproven product won’t be easy. Further, BB7 launched in 2011 and fell flat. Will this poor showing sour enthusiasm for BB10? RIM originally hoped for 100,000 apps for the BB10 at launch. Now, they hope for 70,000. They might not even get that. Searching news and reviews reveals a diversity of opinions regarding how well BB10 will go over. There is no consensus that the launch will earn permanent gains in market share for RIM. Again, BB10 contains features that should make it competitive; it’s just late getting to the party, very late. When your company hangs in the balance, being late is not a good place to be.
Foolish Final Thoughts
Research in Motion built great PDAs and cellphones during the 2000’s. With the introduction of the iPhone and Samsung smartphones, Blackberry suffered significant loss of market share and with that, significant loss of revenue and earnings. The BB10 launch may decide the financial fate of RIM. The BB10 enjoys positive reviews, but will it arrive too late? Apple and Samsung already divide the lion’s share of the smartphone market, can another smartphone/operating system compete? Further, business and government policies allow more workers to choose the smartphone they want, eroding an important Blackberry customer base. RIM has cash in the bank, but unless revenue and earnings improve, that will eventually run out. Matt Di Lallo has expanded on the company's strengths; it's difficult to say if they will be enough to overcome these weaknesses.
dylan588 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!