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People look at new Blackberry devices at a release party to promote the BlackBerry OS 7 devices in Toronto Aug. 3, 2011. (Mark Blinch/REUTERS)
People look at new Blackberry devices at a release party to promote the BlackBerry OS 7 devices in Toronto Aug. 3, 2011. (Mark Blinch/REUTERS)

Holding out hope in RIM's hometown Add to ...

At an annual sales conference for Research In Motion Ltd. in Toronto this week, co-CEO Jim Balsillie stood in front of roughly 600 of his employees to take questions, according to a source close to the company.

It was a tough audience. One employee asked, “Why should we be excited to work for this company?”, according to a person with direct knowledge of the event. Another RIM employee apparently asked, “How did we get into this position?”

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Both are pertinent questions this morning for Mr. Balsillie and co-CEO Mike Lazaridis after the company released dismal third-quarter earnings and a weak outlook for the fourth quarter, which ends on March 3 and includes the last weeks of the Christmas season. The two executives announced that they were both reducing their salaries to $1 because they realize that investors feel “let down,” and said repeatedly that they will “leave no stone unturned” as they seek for ways to stabilize the company coming out of a brutal year.

That disappointment will likely continue for some time. The stock was down sharply again Friday. Revenue and profit are declining, as are BlackBerry sales. Market share in the United States has collapsed to just 9 per cent from 24 per cent a year earlier, and Mr. Balsillie promised a marketing blitz to correct the slump.

But analysts took a skeptical view of the battle plan, given that a launch of new BlackBerrys in August was meant to do just that.

RIM is now dealing with a runaway narrative of bad news that includes market share losses, 2,000 layoffs this year, and a number of PR troubles, such as when two drunk executives forced a Beijing-bound Air Canada flight to land in Vancouver.

But the most serious problems are in its ability to catch up to other smart phone makers with more competitive products. As it reported earnings, RIM also announced that it was delaying until late 2012 the launch of phones running the next-generation BlackBerry 10 operating system. RIM has essentially bet the house on this “transition,” as the CEOs call it, and another delay had analysts feeling even worse about the company’s chances than before.

National Bank Financial analyst Kris Thompson was particularly ghoulish. Like most analysts covering RIM, he thinks the current batch of BlackBerrys running the BlackBerry 7 operating system – like the popular touch screen Bold 9900 – simply aren’t going to work as a stop-gap until RIM gets things better under control. By the time new BlackBerry 10 devices come out, they will likely be up against a renewed iPhone from Apple Inc. and even sleeker devices from fast moving hardware giants like Samsung.

“The BlackBerry 10 delay into the end of 2012 could be the final nail in RIM’s coffin. It’s likely game over for RIM. A turnaround is very, very speculative,” Mr. Thompson said.

“Mike (Lazaridis) still talks about the Bold 9900 as if it’s a fantastic device. My experience with the 9900 was terrible. Management seems to be looking through different glasses than most of the rest of the world.”

Several analysts slashed their targets on RIM shares after the third-quarter report, UBS to $15.50 from $18, National Bank Financial to $8 from $10, Citigroup to $12 from $14, Barclays to $14 from $16, Canaccord Genuity to $15 from $18, and RBC Dominion Securities to $16 from $20.

CIBC analyst Todd Coupland, however, held his target at $25 and told investors the delay in the new devices "should not overshadow international subscriber growth," an area where RIM has had a strong showing with an increase of 30 per cent in the quarter.

Amid all the clamour, it’s easy to forget RIM actually made a profit in the quarter, posting a net income of $265-million. The company also remains debt-free as the number of paying BlackBerry users around the world grew, in the third quarter, to around 75 million – up 35 per cent year over year. Revenue increased to $5.2-billion in the quarter.

In Waterloo, conversations in bars and cafés inevitably meander to these metrics, if they aren’t blurted out defensively. Both RIM employees and local observers say the BlackBerry-maker is simply suffering because Bay Street and Wall Street analysts are too focused on immediate returns and too impatient to appreciate a long term strategy; and that influential North American media outlets aren’t well placed to chronicle RIM’s enormous growth in emerging markets like Argentina, Mexico, the Middle East and various countries in Africa – where year-over-year growth is over 700 per cent, according to research firm Canalys.

“They’ve got to stay the course. They’ve embarked on something that’s very strategic – and when I say strategic, they’ve basically bet the farm,” said one former RIM executive.

“It stands to reason that people tend to watch what’s happening this very second, and they’re not that interested in what led to this, or what’s going to happen... You’ve just got to stay the course. And the best thing to do is let them get on with it.”

Follow on Twitter: @iainmarlow

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