Discuss: The Good, The Bad, and The Ugly for RIM
RIM's earnings call a couple days ago was not what we wanted to hear, but instead everything we needed to hear. Now that we have had time to cool down and think with clarity we can see that the message from Thorsten Heins was clear: RIM "will not deliver a product to the market that is not ready to meet the needs of our customers." In order to deliver on that promise, Heins will ensure that there is "no compromise in this issue." In other words, Heins will not deliver a product with missing features like native e-mail or half-hearted attempts at greatness. So it's only a matter of time before all the pieces begin falling into place. Let's try to gain some perspective by looking back at the flood of information that we learned.
Let's look at the glass half full. On the conference call, Heins pointed out some positives amongst the heaps of terrible news:
- New BlackBerry Curve devices have been made available in the UK, Middle East, and Asia to refresh RIM's current device portfolio and re-invigorate sales in these markets.
- The overall global BlackBerry user base grew to 78 million users.
- 260,000 PlayBooks have been shipped and the 16GB model was not discontinued, it simply sold out.
- New LTE PlayBooks are in the final stages of testing with various carrier partners and are to be released soon. (We may very well see the return of 16GB PlayBooks but with LTE chips when this happens.)
In addition, Heins made a point of clarifying the reasons for the delay. In developing distinct features of BB10--such as keyboard and flow experience--RIM's software development team has found it challenging to combine the code in the way they anticipated and realized that it will take longer to manage all the "incoming code." Keep in mind RIM has offices in various parts of the world due to their acquisitions over the last few years. They most certainly have developer teams in Sweden (TAT), Beijing (Torch Mobile), and Dublin (NewBay) amongst others in Toronto and Waterloo that may account for the need of management and integration of different kinds of code in BB10.
Also, in deciding to push back the launch of BB10, they have polled carrier partners world wide and learned that most would prefer launch in Q1 as many of the global LTE networks will be in place by this time. And it makes sense, what good is an LTE capable phone if most people can't benefit from it? In working to create strategic partnerships with carriers, the first BB10 phone could be the flagship LTE device for some markets.
Another reason why a delay is justified even in this cut throat mobile arena, is that the market has shifted from function driven sales to content driven sales. That is to say a smart phone is no longer seen as simply an agenda or mobile rolodex, most consumers are looking for media consumption devices; music, news, magazines, productivity tools, social media and games. Although it can be argued that the PlayBook's browser can serve many if not all of these needs, when it comes to a smaller form factor, a dedicated app might be a better idea. RIM plans to continue to court developers and seek strategic partnerships to add more high quality apps to AppWorld. So while we wait for the launch of BlackBerry 10, developers can continue to add to the more than 25,000 existing applications for PlayBook that will be forward-compatible with BB10. Of course RIM now needs to take advantage of the few extra months to convince the bigger app makers to bring the apps BlackBerry People want on BB10 on launch (Netflix, Hulu, B&N, Amazon, I'm looking at you!). On this note, the BlackBerry Jam events have gathered lots of attention and have sold out with an overall attendance of over 5,000 developers so far, seeding Developer Alpha devices for devs to build and test their apps.
On the flip side of the coin, Heins also announced some challenges:
- RIM is in the middle of a platform and company transition on an increasingly competitive environment
- The company is expecting an operating loss in the following quarter
- Decline in device sell-thru means they will need to implement programs to drive users to upgrade to BlackBerry 7 devices
In what Heins called "an incredibly difficult message to deliver," RIM confirmed that they are going to consolidate a total of 5,000 positions in their world-wide operations over the following three quarters. RIM also announced revenue for this quarter declining by 33%. RIM pocketed $2.8 billion this quarter, down, from $4.2 billion in the previous quarter. Without saying so, this being due to the saturation of the market with cheap Android devices, resulting in a lower demand for BlackBerry phones, as well as subsidies paid to phone companies to encourage users to purchase BlackBerry 7 phones. However, carriers are not keeping as many BlackBerrys in their inventory or re-stocking at the same pace they had before.
Long story short, there is more money going out than there is coming in and that number rounds up to be a $518 million loss. Analysts and investors are not happy about the lack of results and fear whether RIM can turn it around. With no new devices to offer in the interim, analysts are also concerned that in the mean time, a new iPhone in addition to new Windows 8 phones and updated Android devices will make it difficult for RIM to pick up the slack and rally the support they need for a successful BlackBerry 10 launch.
RIM is preparing for the worst and has hired JP Morgan and RBC Capital Markets to help them assess all possible financial scenarios, including the licensing of the BlackBerry 10 platform or dividing its assets. Licensing BB10 at this point will prove challenging given that the OS has yet to see the light of day. It has even been speculated that the demos shown at BBWC and BB10 Jam are not even core apps but rather distinct apps running on top of the PlayBook OS. One developer in particular noticed how after the flow demo, the massage with the PDF remained unread. It has also been noted how in showing the device in close quarters, multiple devices are used to demonstrate both the keyboard and flow demos. Not to mention, we have yet to see a live demo of the "time traveling" camera app.
Adding insult to injury, RIM's general perception by the general public is a very negative one. It just takes a few minutes in the comments section of any BlackBerry related news article in the mainstream media to catch a severe case of post traumatic stress disorder. It doesn't help RIM that this vicious cycle of negativity keeps feeding off its own broken promises. With every passing month RIM will surely continue to lose subscribers and supporters. Its any one's guess how they will deal with the turbulence the company will experience in the coming months.
At this point the worst thing that could happen is that RIM loses critical traction they have already gained in the developer community and that they become unable to maintain interest from the consumer market in their current offerings, a mass exodus of employees leave the company in protest to the massive lay-offs, their financial advisers demand that the company dissolve into smaller pieces to be auctioned off, and that the Mayans are right and the world ends on the 21st of December 2012, and all their hard work all these months was for nothing.
All things considered, the road ahead for RIM will be far from smooth, and we will surely see things get worse before they get better. The silver lining in all this is that RIM currently has $2.2 billion in cash at the end of this quarter as well as a few unused lines of credit, and no debt.
I really can't imagine if I would do anything different if I were in Thorsten Heins's shoes. What would you do? Sound off in the comments below.