Why RIM's Days Are Numbered
Mar 26th 2012 6:42PM
Updated Mar 26th 2012 6:44PM
In 1999, Research In Motion (NAS: RIMM) invented the smartphone and revolutionized the mobile industry. Ten years later, 50 million BlackBerry devices had been sold and RIM's stock was soaring. Fast-forward to 2012, and shares are down more than 90% since their mid-2008 highs -- and for good reason.
The once mighty BlackBerry maker's failure to adapt, paired with a string of bad decisions from top-management, sent RIM spiraling out of control. Shareholders who were along for the ride have lost billions in the process. According to Bloomberg, at the end of February short interest in RIM reached the highest level since 2004. Still, some investors are counting on a turnaround. My advice to such wishful thinkers: Don't hold your breath.
RIM's chance of recovery is slim
I want to believe in RIM but the company is making it impossible. Until it revolutionizes something other than its management, it will continue to lose market share to competitors Apple (NAS: AAPL) and Google (NAS: GOOG) . Apple recently conquered the BlackBerry maker on its home turf, selling more iPhones in Canada than RIM sold BlackBerrys. Meanwhile, Google still trumps both RIM and Apple in sales, because the Android system is not limited to a single smartphone maker, the way that RIM and iOS are.
It's not as if RIM landed itself in this position overnight. The company's been losing market share for years, while management idly stood by. After nearly two decades of running the business into the ground, joint-CEOs Jim Balsillie and Mike Lazaridis finally resigned. Following their exit, RIM's share of the U.S. smartphone market plummeted, hitting an all-time low of 15.2% in the three months ended in January. Now with a new CEO in place, the company is doing more of the same.
When smartphones get stupid
RIM's lead in the mobile market was a result of its stronghold on corporate enterprise. Flash back to 2007, when BlackBerrys dominated the business world -- a time when no self-respecting executive was ever without his or her "crackberry." Today, that's changed. More global businesses are offering employees alternatives to the company BlackBerry.
For starters, Apple recently inked an enterprise deal with Halliburton, one of the world's largest oilfield-services companies. Under the agreement, Halliburton employees will swap their BlackBerry devices for iPhones. With its next-generation iPad on the market, Apple's on its way to the enterprise big time. And I suspect we'll see more companies like Halliburton transitioning to the iOS platform in the near future.
RIM, on the other hand, managed to drive millions of loyal BBM-ers into the arms of the competition. This outcome was inevitable, considering the company failed to update its platform, while others innovated. And let's be honest: Unless RIM creates a smartphone that doubles as a Roomba to clean up the mess the company has made, consumers and businesses are going to keep choosing iPhone and Android devices over Blackberrys.
Both of the lead mobile-platform companies have something that RIM does not: rich ecosystems of applications. Apple has the App Store, while Google has dubbed its new marketplace Google Play, and both are locking in meaningful sales along the way. RIM has attempted to step up its defense with the new BlackBerry 10, but even that has been delayed. I don't think RIM will ever fully recover, even if it's able to launch BlackBerry 10 before Apple's iPhone 5 launches later this year.
While I'm not shorting the stock here, I'm surely not buying shares on the false hope of a comeback. Apple and Google are winning because they understand that a device is only as valuable as a consumer's experience of it. Instead of playing catch-up, RIM needs to get back to its roots and start innovating. I've lost all confidence in RIM, which is why I'm giving the stock an underperform rating on my profile in Motley Fool CAPS.
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At the time this article was published Fool contributor Tamara Rutter owns shares of Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing ideas. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services have recommended buying shares of Google and Apple and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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