Four Challenges RIM Must Overcome to Save Itself
RIM has fallen from grace, its stock tumbling from a formidable $140 into the 20's in just a couple of years.
After losing half its share price this year, RIM began to rebound, gaining 20% in a month as investors grew optimistic and gave the Waterloo company the benefit of the doubt. Then the BlackBerry maker released its disappointing Q2 results and the stock plummeted 19% in one day.
Share price isn't everything, but it's certainly something—just ask Nortel Networks. Once you hit the death spiral, investors are underwhelmed by the positives and overwhelmed by the negatives, making it virtually impossible to climb out of the hole.
Despite billions in cash, a clean balance sheet, and global growth, Research In Motion is suffering. RBC Capital Markets follows the company closely, and analysts there have recently cut their price target down from an already meagre $35 to just $29 (the stock sits at around $21 today). The bank highlighted four challenges that RIM must overcome to survive.
Despite at a historical low (4x), we don’t see valuation improving until RIM addresses four key issues, which we think keep investors from properly valuing the company. We view recent Q2 results as symptomatic of RIM’s failure to address these challenges, which are:
1. Backwards-Looking, Uncompetitive Products and Software. Four years after iPhone launched, RIM still hasn’t launched competitive Smartphone innovations or addressed its ‘app gap’. With QNX, we believe RIM needs to renew its focus on innovative, bold user experiences.
2. Marketing and Launch Execution. RIM continues to ship products late (e.g., BlackBerry 7) and incomplete (PlayBook minus 3G/email, underpowered Torch 1; Torch 9850/9860 with inferior virtual keyboard, etc.). RIM needs to improve execution as competitors are bringing their ‘A’ game, and have out-maneuvered RIM on marketing, positioning it as passé.
3. Investor Credibility/Visibility. RIM’s apparent inability to offer reliable guidance (including Q2 miss and retracting over-optimistic projections) has created, in our opinion, a formidable credibility gap with the investment community that needs correcting.
4. Governance. To us, RIM’s board has an opportunity to take a more active role in providing a ‘check and balance’ on key management decisions.
Apple's iPhone came out in 2007 and had an immediate focus on apps. A year later, Google's Android platform launched with a similar emphasis. Both have succesfully eaten away at RIM's marketshare. RIM, to this day, has failed to address the importance of apps and encourage developers to choose its platform.
Plagued by product delays and lacking the innovation it was built upon, the company has gone from a pioneer in the space to a slow, clumsy follower: instead of creating, it copies—and slowly at that. When it announces something, it doesn't actually come out for ages, and even then it's often "half-baked." RIM's optimistic expectations quarter after quarter leave a sour taste in investors' mouths. And ignoring shareholders' pleas to split the co-CEOs hasn't helped either.
RBC is spot on, although those are mere stepping stones. With Bada still present, webOS lurking in the shadows, and Windows' mobile arm about to launch its next platform, even keeping RIM's third-place position will prove a mighty and daunting task for this once-dominating company.
