RIM on the Brink?

RIM has released its first quarter results - and they're not happy reading. The company’s revenues have declined for the fourth consecutive quarter to reach $2.8bn - a 33 per cent decline compared with the previous quarter. The company reported its first quarterly operating loss in more than seven years with a net loss of 18.5 per cent.

However, not all parts of its business are performing badly. The company made an honorable profit from its services but it has made a dramatic loss from its hardware. This is due to the decline of both volume shipments and the average selling price of Blackberry smartphones. The company managed to ship only 7.8m smartphones this quarter, compared to 10.7m recorded last quarter. The average selling price of BlackBerry smartphones declined to $218, from $258 last quarter.

Wholly vertical

During the call, RIM’s CEO Thorsten Heins confirmed that BlackBerry 10 (BB10), the company’s next generation platform, will not be available the first quarter of 2013. This means investors should expect an ongoing bad performance from RIM, at least for the next three quarters. Now it is strongly questionable that RIM could maintain its cash position during this period and execute its strategic plans without making some painful decisions of exiting parts of the market they service.

It is becoming clearer than ever that the company needs to wave goodbye to hardware and focus more on delivering services and licensing software. This quarter’s results have effectively confirmed that RIM can no longer afford to be a wholly vertical company with a fully integrated business model. From now on, any underperformance by the devices part of the organization would mean a significant churn of current BlackBerry users, which could lead to the collapse of the whole business including services.

Redressing the situation

RIM is gambling on the launch of its forthcoming BlackBerry 10 operating system to redress the situation. However, the ongoing delay in launching the platform is not going to be in the favor of the company given its current bad performance. The analyst community does not doubt the capabilities of such an OS but this is not enough to help the company redress the situation. Bear in mind that 100 per cent of the current 78m BlackBerry users are still using legacy devices, so upgrading all these users to BB10 will not happen overnight and RIM might well lose a great number of these users in the process. Worst, is the fact that the launch of the platform is now postponed to the first quarter of the 2013 calendar year.

To make it up for this anticipated loss of users, RIM should really consider licensing BB10 to other device vendors and extend the reach of BlackBerry services to beyond its own portfolio of devices. This will enable RIM to target a wider audience and unlock new market opportunities in both the consumer and the enterprise segments, allowing the company to reinvigorate its position as a leader in delivering a premium customer experience and reliable and secure messaging services.

Malik Saadi is principal analyst at Informa Telecoms & Media