End of the Line for Research in Motion (RIMM)

It seems like shareholders of Blackberry maker Research in Motion (RIMM: Charts, News) have finally had enough. After three years of executive inaction and being picked apart by Apple (AAPL: Charts, News) and Google (GOOG: Charts, News), shares of former market leader RIM have slid from a 2008 apex of $144 to an eight-year low near $13, prompting investors to question if the company can even make it to 2012 in one piece.

Within the past three years, shareholders lost $70 billion as the company's widely ridiculed dual CEOs Mike Lazaridis and Jim Balsillie have failed to protect the Blackberry brand. At the beginning of December, the company slashed its fourth quarter outlook, citing lowered BlackBerry shipments, weak Playbook sales and franchise erosion as the primary causes. The company now expects to miss its full-year earnings expectations of $5.25 to $6.00 per share as well as its revenue target of $5.3 to $5.6 billion. This week, the company delayed the release of its new smartphones - which it desperately needs to sell to survive - until the second half of 2012.

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A mere three years ago, RIM was the Apple of its day, doubling sales and profits year-over-year as subscribers were signing up in record numbers. RIM dominated the corporate space and was set to take over the everyday consumer market as well. Lazaridis and Balsillie didn't see Apple's iPhone launch in 2007 as a serious threat, and even ridiculed the products' growth prospects in a Blackberry-dominated market. The company likewise ignored the threat of Google's Android OS, which spread a unified operating system across multiple hardware platforms for free, attracting an army of handset makers - such as HTC, Samsung, Sony (SNE: Charts, News) Ericsson and Motorola (MSI: Charts, News) - which were all more warmly received than the aging Blackberry. RIM then waited too long to fight back, mocking touch screen phones until it finally released the poorly conceived and received Blackberry Storm, nearly two years after the first iPhone.

After the failure of the Storm, RIM slowly started work on its successor, the Blackberry Torch, but then it realized, too late, that the paradigm had shifted - a sleek handset was only half of the product. The other half was the need for third-party application markets - such as Apple's App Store and Google's Android Market. RIM was unable to match the developer and user base of either, and users dumped their Blackberries en masse in favor of iPhones and Androids. In the meantime, the company continued to release updates of its out-of-date models - in other words, new versions of phones that nobody wanted - while repeatedly delaying the release of the Torch, which was eventually released three-and-a-half years after the first iPhone.

In the meantime, Apple had introduced an entirely new market - the tablet - with its seminal iPad. RIM simply didn't know how to respond, and its knee-jerk reaction, the Playbook, was poorly received due to the lack of 3G connection, basic built-in apps such as e-mail, contacts or a calendar. Apparently the company failed to learn from its missteps with the Blackberry as well as Hewlett-Packard's HPQ spectacular TouchPad fire sale. RIM ended up taking a $485 million loss on unsold Playbook tablets. The company then lowered the cost of each Playbook, which costs $270 to manufacture, from $300 to $199 - taking a loss larger than its originally intended profit on each sale. Users had also hoped that the Playbook and the new Blackberry would use the company's new unifying BBX software platform, but the company pushed back its release until next year, which has driven even more customers to delay new purchases.

Finally, to top off all these missteps, RIM's service went out for four days in October, cutting off millions of its remaining customers across five continents from its e-mail, messaging or browsing services. One executive likened RIM's crisis response to its product design - "outdated, slow and not well-received by their customers." RIM posted another charge of $50 million from the embarrassing fiasco. Rather than admit their mistakes and the lack of urgency in the company's long-term strategy, RIM's CEOs have attributed the company's rapid decline to the natural aging of its smartphone portfolio. To offset its losses, the company laid off 11% of its workforce. While RIM still has a strong brand which may make it an attractive acquisition target, long-term investors shouldn't have much faith in this company. For the past three years, RIM's CEOs have been behind the curve with every major decision, alienating existing users and failing a compelling reason for new users to adopt. Still, the stock might be good for a short-term swing trade, as from a technical standpoint shares are overdue for a relief rally.

Other News About RIMM
Does RIM need to ditch Blackberry?
RIM may need a complete makeover to survive.
RIM and Ofcom will meet about adult content
RIM starts to grasp at straws for new sources of revenue. Other Stocks in the News
DuPont Affirms Strong Long-Term Growth Outlook
DuPont assures investors that its long-term growth is intact.
Baidu Sinks as Index Falls Most Since September: China Overnight
Baidu gets punished as China's Internet growth stalls.

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Published on Dec 20, 2011
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

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