RIM's delays present new challenges
A Blackberry shows the company's latest results Friday, June 29, 2012, in Montreal. Shares of Research In Motion (TSX:RIM) are taking a beating today as investors react to the BlackBerry-maker's dismal earnings results and another delay to its new smartphones. Shares in RIM fell 14.5 per cent, or $1.37, to $8.09 in early trading on the Toronto Stock Exchange. THE CANADIAN PRESS/Ryan Remiorz
TORONTO - While Research In Motion battles to convince investors it's making the right moves, the company also faces perhaps a more difficult struggle to sell its millions of users on the idea of waiting until next year for new devices.
With seductive new smartphones running Google's Android operating system coming out virtually every week and rumours of an updated iPhone this fall, even RIM's most faithful users will have their loyalty tested.
"RIM is really between a rock and a hard place," said technology analyst Carmi Levy on Friday.
"It's trying to convince consumers that it remains relevant, but it doesn't have anything relevant to offer them."
That's the challenge RIM will face after the surprise delay of its new BlackBerry operating system. The revelation late Thursday threw a wrench into what chief executive Thorsten Heins had been telling the public was a well-oiled machine working its way towards a product launch later this year.
With the announcement came a whole new wave of challenges for the Waterloo, Ont.-based technology firm, including how it's going to persuade consumers into buying the aging slate of BlackBerry devices currently taking up space in warehouses.
"When you don't come to market with a product for so long, consumers are eventually going to need to upgrade and will be looking for something else," said Krista Napier, a senior mobility analyst at IDC Canada.
"And if you don't have that upgraded product on the market you run the risk of them refreshing their product to something else."
Napier said a study by IDC Canada found Canadian smartphone users tend to buy a new phone every 18 to 20 months. The latest delay from RIM will give competitors seven to nine months of that time to chip away at the BlackBerry's customer base while RIM's engineers toil in the workshop.
Competition has been one of the greatest setbacks for the BlackBerry device over the past few years.
A pioneer of mobile email affectionately referred to as the "CrackBerry" — the BlackBerry has fallen behind, particularly in the fast-moving North American consumer market where the hottest technology is often the biggest seller.
For this reason, RIM has turned to the emerging economies in South Asia, where being at the peak of technology isn't necessarily top priority in an effort to help stay afloat for the rest of the year.
RIM has ramped up efforts in India to market its low-priced BlackBerry Curve model — locally known as the Jazz — while also selling the higher-end Bold to business customers.
"We believe these products and other programs can help to reinvigorate sales in these regions," Heins told investors on a conference call Thursday.
"I expect that to help us in the next quarters."
However, even on the global market, sales of BlackBerrys are stumbling, with first-quarter international sales off $1.1 billion over the previous quarter — and analysts generally don't expect them to improve.
In North America, the company is pushing to maintain strong relationships with big businesses and government agencies, also known as its enterprise customers, in hopes they won't defect to other devices before 2013.
The company also announced plans to chop away at its operations in an effort to create a leaner company. It will lay off a third of its workforce — or about 5,000 employees — as well as reduce the number of different BlackBerry devices on the market and outsource more of its non-core functions.
On Thursday RIM, which reports in U.S. dollars, posted a loss of US$518 million or 99 cents per share for its latest quarter, steeply missing analyst expectations. The results marked a decline from the profit of $695 million or $1.33 per share a year ago.
Heins told analysts that he expects the company will face further pressure on its financial results over the next several quarters.
At least one analyst questioned how RIM could successfully execute the release of its new phones amid mass layoffs.
"We think execution risks will continue," Jefferies analyst Peter Misek said in a note to clients.
"We believe the BB10 pushout decision was recent and leaves RIM with inferior products in an increasingly competitive and saturated smartphone market."
Rumours have circulated for months that a potential buyer could swoop in and pick up the company, and when nobody appeared to be interested, questions emerged over whether Heins would decide to put a chunk of RIM up for sale — most likely its struggling hardware division.
Heins has repeatedly said that selling the company is farthest from his mind, and so far the company's board has stood by him.
However, investors are likely to grow more impatient with the drawn-out and uncertain future for the company.
"With increased global smartphone competition — and a very low probability the market will support RIM’s new BB10 mobile computing ecosystem — we believe RIM will ultimately need to sell the company or dramatically change its business model," said Canaccord Genuity technology analyst Michael Walkley said in a note.
Shares of the company ended Friday down 20.3 per cent, or $1.92, to $7.54 on the Toronto Stock Exchange.
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