Is RIM Making A Comeback?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We have all seen examples of new leadership breathing new life into a company. A great example is Hewlett-Packard (NYSE: HPQ). After lackluster leadership from Carly Fiorina the company elevated its printing business head, Mark Hurd, to the CEO post. The company's fortunes turned around because Hurd was a top-notch operator adept at bringing affordable and differentiated products to market and boosting Hewlett's sales, notwithstanding the spying scandal that led to Hurd's departure for Oracle.
As an eternal optimist, I submit the same is on the horizon for Research In Motion (NASDAQ: BBRY). As a leading provider of some outstanding wireless products and services since its introduction of the BlackBerry, its latest move seems to be evidence for its getting back on track to success and growth.
A fair question. With the BlackBerry, RIM should have been far out in front of the smartphone and mobile computing market. Instead, under its previous leadership, the company disintegrated into a skeleton of what it was just a few years ago. It seemed to simply watch as BlackBerry smartphone sales dropped 21% to 11.1 million units and revenue plunged 19% to $4.2 billion.
With recorded losses of $125 million for last quarter, its most recent release of the update for the BlackBerry PlayBook tablet’s operating system, did little to stop the bleeding. Nearly all the ‘upgraded’ functions were of little consequence in comparison to other tablets that are already on the market.
The PlayBook 2.0 now, however, has a native email client, calendar and contact functionality after being inexplicably released previously without. It also includes a unified in-box that incorporates messages from Facebook, LinkedIn, Twitter, and personal and work email accounts. The social integration with the calendar and contacts apps seemed at least a step in the right direction.
Unfortunately, it was still losing ground on the smartphone front to competitors such as Nokia (NYSE: NOK) and HTC because of their strategic partnerships with leading brands such as AT&T (NYSE: T), Sprint-Nextel, and of course Verizon (NYSE: VZ). HTC recorded massive first-quarter gains as the world's third-largest phone maker by market value. Indeed, Nokia's new Lumia 900 is selling out. The latest projections show that Lumia 900 sales through AT&T are likely to top one million in the second quarter. Indeed, because many legacy Blackberry users are on the AT&T, Sprint and Verizon networks, at least some of them are likely switching from Blackberry devices to the Lumia series phones. Since Sprint and Verizon are CDMA networks, the Lumia 900 will not necessarily work properly on those networks this quarter. However, Verizon has been waiting for an additional Windows phone for its network, beyond the HTC Trophy. Verizon, specifically, fills its smartphone line up with predominantly Android phones. Nokia's Lumia 900 has the sufficient support that Verizon needs to add it to its line up. Thus, Blackberry devices could see additional competitive pressures in the near future not just on the AT&T network, but on the Verizon and Sprint networks, too.
A New Strategy
It seemed an understatement to say that Chief Executive Officer Thorsten Heins had his work cut out for him. Stepping into the role in January amid the loss of two other high-level executives, Heins began a re-visioning process that led to some surprising yet effective moves.
Last month, the company acquired Paratek Adaptive RF, a designer and manufacturer of adaptive radio frequency front-end components for cell phones. Following this to its conclusion, it would seem the company will soon be able to allow Blackberry users to upload and download large amounts of data faster, provide fewer dropped calls, and hold longer battery life. The new antennae design could also make the company competitive by allowing for a thinner and sleeker phone.
Of course, it should be inserted here, that partnership would be key to this, and unfortunately, partnership doesn’t seem to be RIM’s strong suit. It took far too long for its recent ‘Mobile Fusion’ announcement, which will open up non-BlackBerry smartphones to its services.
With a renewed focus on winning back consumer loyalty, Heins is pushing the company back to its roots as the premier smartphone product and service provider for businesses. The Mobile Fusion encapsulates device management tools that also control Android smartphones and the iPhone.
In addition to a focus on businesses, Heins hopes to gain back market share through offering basic data plans to non-smartphone users. It’s similar to the age old trick of getting someone ‘hooked’ and then positioning yourself as their sole provider. Once cellphone users experience data usage, it will ease the transition into becoming smartphone users and – ideally - BlackBerry device customers.
The plan seems simple yet necessary. Picking up the pieces of a botched notebook attempt will be costly, but renewing dying loyalty with an older product has inherent risk, as one must contend with current competition as well as the negativity instilled in the consumers mind about BlackBerry as ‘antiquated’, ‘inconvenient’, and fear that updates will be few and far between.
What Will Happen and Why
As already stated, HTC already has a major lead through its partnership with U.S. carriers. AT&T has committed to putting the One X into its line of products within the next 60 days, backed with one of AT&T’s amazing marketing pushes. The company is positioned to lead Android to a 50% global share of the handset market before the end of 2012.
RIM’s PlayBook has left consumers with a sour taste. It will take delivery of strong products in a timely fashion to win back consumers. Even so, the company has a strong foothold in worldwide market, with a current loyalty base of 75 million subscribers, as well as some valuable patents that will allow it to maintain competitiveness. Its stock, currently sitting at around $12 per share, has been suffering, down from $14 last month.
That being said, leadership is the main component in a company’s success in developing and implementing a strategy. Heins movement in narrowing focus and marshaling all its resources can lead to investors seeing potential returns. What also must take place is the company’s push in strategic partnerships. It must find a way to gain value with a sleek, attractive phone that combines functionality with compatibility. This will only be achieved with help from other leaders in the field.
Smartphone and tablet markets have outsold PC’s and can only increase in the coming years. Businesses will be looking for strategic and cost effective solutions to mobile phones and computing needs. Those with the ability to take advantage of this will undoubtedly reap the rewards. While HTC and its partners are strong and I would buy ahead of earnings, I see RIM’s growth potential and predict good returns are on the horizon.
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