Can RIM Turn the Corner?

When we blogged three months ago about RIM and their poor financial results, the staff layoffs and senior management defections, it certainly spelled ‘doom and gloom’. Since then, a number of RIM investors have been insisting that Balsillie and Lazaridis realign their fiefdom management[1] and look at ways to maximize shareholder value. So how’s RIM doing?

When they announced their recent earnings last week the stock tumbled 20 per cent. RIM earned $329 million in the quarter, less than half of its profit a year ago. Their brand value also dropped from the beginning of the year[2]. And more disappointing news, BGS Geller (an on-line review analyst) calls the new Torch ‘awful’ which isn’t the best review of their new handset. On the tablet side, during the quarter RIM shipped about 200,000 PlayBook tablets while many analysts were expecting double that number or more. And in their financial results last week, the company also guided analysts to expect continued struggles for the next quarter and possibly beyond. The company’s stock has lost nearly half its value so far this year.

But the company is not dead; they’ve just had some very, very bad technology delays, product mishaps and management issues. This is pretty evident; but the recent spiral might not mean death for the company. Remember that there are over 55 million active Blackberry users. There are over 45 million BBM users. And a number of analysts said their channel checks indicated that the company’s newest line of smart phones, including the new version of the popular BlackBerry Bold (notice they didn’t say Torch per above) were selling well. Next year the company plans to launch the first of its brand new mobile devices powered by the QNX operating system and RIM will eventually move all its high-end devices to the new operating system. Much of the company’s future rests on whether its QNX phones can close the gap with the market leaders Apple and Google’s Android phones. Also hopeful for PlayBook (not dead yet) on the Q2 Fiscal Call last week, Balsillie confirmed that a "major feature update" is coming soon.

So, can RIM turn the corner? Well on the plus side, one could argue that this last quarter was a transitional one, as RIM readies QNX. And RIM is still a hugely profitable company. We’re staunch supporters of RIM, their employees, their development plans and the opportunity to still succeed in the market with their handsets. On the negative side, until the company can truly differentiate their Playbook from major competitors like the Apple iPad and Google’s Android tablets, they will have a difficult time getting any market share in this space. One thing for sure- the coming months will be challenging, as RIM enters the holiday shopping season competing against a slew of smart phones powered by Google’s Android operating system and a new iPhone 5.

If the company has already turned the corner, the headwinds they’re experiencing will be intense for the next little while. This is a real cutthroat competitive business and their competition has caught up and even gone past RIM in some areas. It will be just as monumental for them to keep up in the market as it will for them to deliver on all that they are promising.

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[1] They latest naysayer was Jaguar Financial Corp (it holds hold less than 5 percent of RIM's stock) who wants the Canadian company's board to wrest power from co-Chief Executives Mike Lazaridis and Jim Balsillie and for up to five of RIM's independent board members to explore options to maximize shareholder value.

[2] Rated by London based Brand Finance.