Over the past twelve months, the shares of Research in Motion, the maker of BlackBerry devices (NASDAQ: RIMM), have lost over 50% of their value.  In June, on weak Q1 sales, RIM slashed its full-year expectations by approximately 30%.  RIM missed Wall Street analysts’ revenue targets by almost $300 million.  The day after the announcement, RIM shares fell over 20% to just under $30 per share.  Unfortunately, the decline did not stop there.  RIM shares dipped to a new 52-week low early this week. 

 

So what is going on in Waterloo?  According to the company, RIM is currently in the midst of a transition period, both in technology and within the organization.  The scale of this transition appears to be formidable.  RIM entered the tablet market earlier this year with the release of the PlayBook, a 7” tablet that runs on a brand new QNX-based operating system.  Despite a large marketing effort by RIM, the PlayBook received a lot of criticism for its lack of native email, calendar, and BlackBerry Messenger support.  At CES 2011 in Las Vegas, Mike Lazaridis, the Co-CEO of RIM revealed that the company was also developing a new QNX-based operating system for next generation “super phones” it plans to release.  In line with this transition period and as part of a “cost optimization” plan, RIM announced on Monday that it will lay off 2,000 employees to reduce its global work force to 17,000.  This streamlining includes a management shuffle.  

 

RIM’s strategic imperatives are, however, only part of the picture.  The smartphone industry is rapidly changing, especially with the proliferation of affordable data plans targeted at the consumer market.  The growing consumer market has been a game changer for RIM, whose strategy and products have traditionally been geared towards B2B and business users.  Consumers and business users expect and demand very different things from their smartphones.  RIM, as indicated by its inability to bring to market a competitive response to the original Apple iPhone and subsequent models, may have been unable to predict the scale of this industry shift and is therefore now forced to play catch up.  With the introduction of new smartphones powered by Google’s Android operating system, the task of catch is now more difficult than ever.  

 

Indeed, much of the downward pressure on RIM shares can be attributed to fears that RIM will not be able to compete.  Earlier this week, UBS cut its price target on RIM to $30 per share from $41 on this basis.  Over the past two months, RIM has delayed the launch of its BlackBerry OS7 devices to the end of summer and lost the support of Seesmic, an app developer.  Early in June, the institutional investor, Northwest Ethical Investments LLP called for RIM to reassess its Co-CEO structure.  On July 27th, The Canadian Press reported on a comScore survey which found iPhone 4 (16 GB) to be the most widely owned smartphone in Canada.  It is however noteworthy that the same survey found RIM to have the largest overall market share in Canada.    

 

RIM needs to come out of this transition period strong and ready to hit the ground running.  How the market will respond to its new products is yet to be seen but it is clear that RIM needs to refresh its product lines soon with competitive products in order to stem its loss in market share

 

Disclosure:  I have no positions in RIMM and do not plan to initiate any positions in the next 72 hours.  

 

ASiu – BlogBerry.hk