RIM Charts Risky Survival Plan While Opening Door to Sale
Research In Motion Ltd. (RIM), trying to ensure its survival as sales plunge, is charting a risky path of refocusing on business users while weighing strategic changes from licensing its BlackBerry software to selling itself.
Chief Executive Officer Thorsten Heins said yesterday the BlackBerry maker will concentrate on the market it once dominated following a fifth straight quarterly sales shortfall. He also said he would consider a sale of the company, though that is not the “main direction” at the moment.
Heins, who started as CEO in January, is retreating to serve enterprise users and “targeted consumer segments” after failing to stop continued market-share losses to Apple Inc. (AAPL)’s iPhone and devices running Google Inc. (GOOG)’s Android software. That means he’s withdrawing from the faster-growing part of the market while trying to ward off Google and Apple’s accelerating push into the workplace, fueled by companies allowing employees to bring in their own devices.
RIM “may have lost too much momentum to recover,” RBC Capital Markets analyst Mike Abramsky, who cut his price target on the stock today to $13 from $16, said in a note to clients. “We are concerned RIM continues to misread the market.”
Jim Balsillie, RIM’s former co-CEO, resigned from the board and two other executives departed as part of the overhaul. The Waterloo, Ontario-based company said also it will discontinue giving financial forecasts.
RIM’s price-to-earnings ratio, a measure of the stock’s affordability, is less than 5, the lowest of its industry peers, according to data compiled by Bloomberg.
“This is an attractive valuation for anyone willing to fix the current strategy,” said Pierre Ferragu, an analyst at Sanford C. Bernstein & Co. who rates RIM the equivalent of a hold. An acquisition of RIM “remains a remote but real possibility,” he said.
A takeover of RIM’s size would trigger a review by the Canadian government, which must determine whether an acquisition is in the national interest. Prime Minister Stephen Harper’s government in 2010 rejected Melbourne-based BHP Billiton Ltd. (BHP)’s $40 billion hostile takeover of Potash Corp. (POT) over concerns the sale would cut jobs and tax revenue.
Canadian Finance Minister Jim Flaherty today said he hoped that RIM is successful while pointing out it is controlled by its investors. “RIM is a private company that trades and has shareholders of course,” Flaherty told reporters in Toronto. “They will be the masters of their own destiny.”
Asked on a conference call with analysts yesterday if he would consider selling the company, Heins said that he would have to weigh “any element that we detected during that strategic review that would lead us to consider it” while a sale is “not the main direction” at the moment.
Heins also acknowledged that he was wrong in January when he suggested that RIM didn’t need “drastic change.”
“The impression I had of RIM at day two of being the CEO is now pretty different from the impression, not the impression, from the facts I know after being 10 weeks the CEO,” he said on a conference call. “It is now very clear to me that substantial change is what RIM needs.”
No More BlackBerrys
While Heins vowed in January to persuade more customers to snap up new Bold, Curve and Torch models, which offer better touch-screen navigation and Web browsing, that isn’t happening.
Plunging U.S. sales have left RIM’s share of the global smartphone market at 8.2 percent in the fourth quarter, down from 14 percent a year earlier, according to research firm IDC. Apple’s share in that period rose to 24 percent from 16 percent.
U.S. government agencies, oilfield-services provider Halliburton Co. (HAL) and banks like Standard Chartered Plc (STAN) have either stopped issuing BlackBerrys or let employees use their own iPhones and Android devices in the past 18 months.
Heins said yesterday that RIM was “late” to acknowledge the bring-your-own trend to the workplace that has contributed to falling sales.
To stop that trend from spreading, RIM needs to do a better job of reminding organizations that it can offer customers a dedicated network and secure servers, said Ted Schadler, an analyst with Forrester Research (FORR) in Cambridge, Massachusetts. RIM operates data centers around the world through which all BlackBerry e-mails travel, a competitive edge that helped it win over corporate users after it first started offering its service and devices more than a decade ago.
“They need to focus on their strengths,” said Schadler. “Those are two extremely powerful assets that they essentially ignored over the last three years while they’ve been fighting this battle for market share of devices.”
Still, that advantage has started to erode as companies have installed technology that has made the use of iPhones and Android devices for corporate purposes more secure. Apple has also won over business users with its market-leading iPad tablet computer, a device which RIM has so far failed to challenge with its BlackBerry PlayBook product.
Because corporate users can increasingly use the devices they want, rather than the ones given to them by their information-technology departments, RIM’s strategy of approaching the smartphone market from the enterprise point of view is risky, said Scott Sutherland, an analyst at Wedbush Securities Inc.
“It will be difficult to keep a hold on the enterprise without a major partnership with a more consumer focused company,” such as Samsung Electronics Co. (005930), said Sutherland, who has the equivalent of a hold rating on RIM. “While the company accepts the fact that it was late to the bring-your-own-device market, we fear that the damage is already done” because it’s consumers now driving the enterprise market, not IT managers, he said.
Heins told analysts on the call that he would consider licensing RIM’s planned new BlackBerry 10 operating system to let other handset makers use the software as he focuses the company on businesses rather than the broader consumer market.
“We will strongly invest in enterprise, industrial design, high-end aspirational devices,” Heins said. “BlackBerry cannot succeed if we try to be everybody’s darling and all things to all people.”
RIM’s strategy has a chance to succeed, though any recovery is unlikely before the latter part of the year, said Nirav Parikh, senior vice president at Los Angeles-based TCW Group Inc., which manages about $30 billion in equities including RIM shares.
“Whether it turns out to be good or bad depends on how well they do it,” Parikh said. “It doesn’t change our opinion that there’s a couple of difficult quarters ahead.”
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