December issue 2011

Dropped calls, poor signal strength, network failure: there are many telecommunication terms that can be used to describe the recent performance of one high-tech giant. None of them are good — and for good reason.

It hasn’t been a good year for the makers of the once universally loved Blackberry, Research in Motion. You just have to check the recent trajectory of RIM’s share price to understand their fall from grace: down 77% since its 2011 high in February of US$69. It is now trading at $16.

It’s a considerably more ugly picture than that of the broader markets around the world. Sure, stocks generally are lower since early 2011, hit hard by a global slowdown and Eurozone debt woes. But the S&P500, which is seen as a general indicator of the US stock market and economy, is down just 15% from its 2011 peak. In fact, RIM’s troubles started before the broader market started to factor in all the global uncertainty and dropped off from their highs in April. RIM’s share of the US smartphone market has severely declined over the last two years: it now sits at 18%, down form 42%. It commands even less of the global market: about 12%.

Recently, RIM has been battered not just by the volatile markets but also by the press, financial analysts and its customers. In October, global BlackBerry service outages garnered reams of bad press. RIM, unlike other mobile phone manufacturers, encrypts data before sending it via telecommunication networks. Other mobile phone makers, such as Apple, Samsung and Nokia, rely on carrier networks to handle all content delivery. In October, BlackBerry servers failed causing email to be backlogged and BBM instant messages to be delayed for days in some cases. It will take more than fancy new BlackBerry models to counter these issues.

The perfect storm engulfing the company had some financial journalists calling the “implosion” of RIM the biggest global corporate story of the year.

Here’s a look at the recent major events bruising RIM and impacting the company’s long-term prospects:

September:

• RIM’s second quarter financial results and future outlook disappoint shareholders and analysts. Revenues were down 15% and guidance for the next quarter was modest with slight downward revisions in projected profit.
• PlayBook sales continue to lag behind other competitors. In the three months ending in August 2011, RIM’s tablet offering sold only 200,000 units, no where near the 500,000 tablets expected by Wall Street analysts. Critics call the PlayBook a massive failure and believe it is a sign of a lack of innovation at the company.

October:

• Led by Canadian merchant bank Jaguar Financial, a group of shareholders who collectively hold about 8% of the RIM’s outstanding shares call for a change in the corporate governance of RIM and ask management “to pursue a value creative transaction, such as a sale, merger or division into separate public companies.” The CEO of Jaguar says that “no chairman and a management team not fully focused during a crucial four-year period have resulted in a leaderless company, a problem that remains today.”
• A four-day-long BlackBerry service outage affecting millions of customers on five continents causes emails and instant messages to go undelivered, frustrating customers. It was the worst service disruption in two years and has likely damaged RIM’s reputation for protected and reliable message delivery, considered the company’s top selling point.
• After the service outages, Telefonica, a major Spanish telecom firm, said it would compensate its customers for the downtime. In the UK, Vodafone was considering doing the same. Those companies and many others may ask RIM to compensate them for their losses. This was seen as more bad news for RIM shareholders who already own a company with dwindling cash reserves.
• Less than two weeks after the massive service failure, David J. Smith, senior vice-president with BlackBerry PlayBook, wrote in a blog post that “we’ve made the difficult decision to wait to launch BlackBerry PlayBook OS 2.0.” Originally scheduled for October 2011, the launch was pushed out to February 2012, another sign that RIM is struggling with its new product cycle.