What's Ahead for RIM?

By  Jessica Binns — June 21, 2011

Late last week BlackBerry maker and enterprise communications stalwart Research in Motion released its financial results for the first quarter of fiscal 2012, revealing declining quarter-over-quarter revenue, impending layoffs, and mediocre sales of its anticipated PlayBook tablet. What does all of this mean? What’s in store for RIM? And should enterprises heavily invested in the company’s devices, software, and services be concerned?
 
Looking at the numbers
In Q1 2012, RIM reported revenue of $4.9 billion, $700 million less than the previous quarter. Its international business is bolstering the company’s bottom line, with 67% growth in overseas markets.
 
“Fiscal 2012 has gotten off to a challenging start. The slowdown we saw in the first quarter is continuing into Q2, and delays in new product introductions into the very late part of August is leading to a lower than expected outlook in the second quarter," Jim Balsillie, Co-CEO at Research In Motion, said in a company statement. RIM is delaying shipment of its WiMAX PlayBook on the Sprint wireless network.
 
Battening down the hatches
“From an enterprise perspective, the smartphone market is a tough market,” says Denise Lund, senior analyst with Yankee Group. “Generally speaking, I’m not surprised that RIM has slashed its forecasts and is battening own the hatches, more or less.”
 
Lund continues, “RIM needs to operate with confidence and diligently [focus] on launching smartphones and tablets that address technical features of interest to IT buyers.” More important, the BlackBerry maker should ensure its devices are meeting the needs of individual employees, the consumers who increasingly are driving device decisions in the enterprise. Devices should offer familiar experiences with an appealing selection of applications, she adds.
 
“BlackBerry is still a major force in the mobile device market,” says Dan Shey, research practice director for ABI Research. “They simply need to become ultra-focused on migrating from Java … so new products can be based on the QNX OS.”
 
Despite mediocre sales, Shey insists that the PlayBook actually is a bright spot for RIM, especially in light of the company’s financial setback. “In the smart-device market, your competitiveness is improved dramatically by having a tablet product, not simply for the sales opportunity, but for the brand awareness,” he explains. “As businesses consider purchases of devices, there is value in purchasing all devices from a single supplier, particularly if they work well together and leverage existing investments.”
 
In his report, “Enterprise Smartphone Demands Nears an Inflection Point,” The 451 Group’s Chris Hazelton, research director, mobile and wireless, writes, “The investment that organizations have made in RIM's server-based infrastructure has served to create stickiness, and its security capabilities have entrenched BlackBerry devices in highly regulated environments.”
 
However, on a quarterly basis since May 2008, RIM has seen a steady decline in its share of planned purchasing for BlackBerrys by U.S. enterprises, according to the report. What’s more, RIM's “long-in-the-tooth BlackBerry OS” and its low level of mobile application developer
support are the primary reasons for the decrease in corporate buying, Hazelton adds in the report.
 
Another sore point: Apple’s new iMessage platform directly challenges the wildly popular BlackBerry Messenger. “The addition of iMessage will bring secure corporate instant messaging to the iPhone—causing a new wave of BlackBerry users hooked on BBM to migrate to the iPhone,” Hazelton writes in the report.
 
Failing to innovate
Peter Crocker, founder of and principal analyst for Smith’s Point Analytics, says many of RIM’s problems flow from one source. “I think one fundamental problem RIM has stems from the success of the QWERTY keyboard,” he explains. “Because the QWERTY keyboard has provided a competitive advantage for a long time and everyone at RIM has bought into the fact that QWERTY keyboards are the only way to go, the company has not sufficiently invested in touchscreen technology.”
 
The PlayBook’s lack of a QWERTY keyboard may explain why RIM left out e-mail support on the tablet, he adds. “They probably figured that no one would use the device to write e-mails when they have a BlackBerry.”

The enterprise doesn't have the buying power that it used to, and it's the change in the balance of buying power that's hurting RIM, says Phil Redman, vice president of network services and infrastructure for Gartner. RIM is trying to appeal to both consumers and businesses with the same product, and that strategy largely has been ineffective.
 
While RIM clearly is losing ground to Android and iOS devices in the enterprise, Lund believes the company can remain a force for businesses. “I think the game will be to maintain its existing presence in the enterprise,” she says. “It seems to me that RIM recognizes it will be a long road of three close device types in the enterprise going forward. RIM is taking steps with its operations that would suggest this.”
 
Shey adds, “RIM has simply been confronted with more competition in North America, causing it to lose its market share.”
 
The control that RIM offers will continue to appeal to IT managers, Crocker says, but the company won’t regain dominance unless it can figure out a way to navigate the Web and apps more effectively with a touchscreen device. “I don’t know what the answer is but coming up with a revolutionary design will require innovation, technology, and an appetite risk, all areas where RIM has fallen behind,” he adds.
 
Hope for the PlayBook?
Crocker believes that beyond the iPad, the tablet market in general is struggling and the PlayBook’s woes are not unique to RIM. “You have a whole bunch of vendors chasing after a market that is really a nice-to-have and not a need-to-have,” he explains. “Until the price of these devices comes down, there will be more demand at the high end of the market, which is where Apple is strong.”
 
“The tablet market in the enterprise is fragmented, with 15-plus brands having some degree of uptake in enterprises,” adds Lund. Winners in the enterprise in the long run will appeal to employees without sacrificing security, integration, and performance criteria.
 
“With a glitchy touchscreen and no e-mail, I don’t think the PlayBook will gain traction,” Crocker adds, although he doesn’t believe any other vendor will challenge Apple anytime soon.

Redman notes that the first quarter of the fiscal year typically is the slowest, and as such, there's plenty of time for improvement in PlayBook sales. "It's a new category for RIM but awareness is growing," says Redman. "The capabilities of the device are improving; it started out buggy but it's getting better."
 
No need to panic
“RIM’s recent financial troubles do not create any issues for businesses heavily invested in RIM,” Shey says. “RIM’s current smartphone products can serve businesses for many years and now with the PlayBook, these companies can provide tablets to their mobile workforce and still leverage their BES and application investments.”
 
Crocker agrees, but cautions IT to consider multiple suppliers. “Any company that is too heavily invested in one vendor is asking for trouble, especially in a market that moves as quickly as the mobile computing market does.”
 
There always are concerns when a company's valuation drops by more than 20% over the last several years, says Redman, but RIM isn't going to fail overnight."You have to change to survive," he adds.

Redman also cautions against reading too much into the announced layoffs. "Layoffs are are fast way to get back to better margins and profit," he explains, adding that they're often what publically traded companies needed to do to please shareholders. "They've grown very fast, but they may have superseded their capabilities."

In the end, RIM should focus on its strengths in order to win enterprise loyalty. “RIM is not only a top three smartphone choice in the U.S. amongst employees, but has legacy in offering integration with back office systems and enterprise-grade security, which are in the IT decision maker’s top-tier decision criteria for both smartphones and tablets,” says Lund. “Technical features are also important in the IT buyer’s mind, and an area that it sounds like RIM is closely evaluating with its product delays and, I suspect, prioritizations.”
 
 
 

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