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People exit a building on the RIM campus in Waterloo, Ont. (JENNIFER ROBERTS/JENNIFER ROBERTS/For The Globe and Mail)
People exit a building on the RIM campus in Waterloo, Ont. (JENNIFER ROBERTS/JENNIFER ROBERTS/For The Globe and Mail)

In RIM's Waterloo, the stakes 'have never been higher' Add to ...

At the historic Huether Hotel in downtown Waterloo, Ont., on Tuesday evening, mobile software developers gathered for an event sponsored in part by Research In Motion Ltd.

The assembled programmers tossed back subsidized beers and chicken wings, and were offered a chance to win one of RIM’s PlayBook tablet computers.

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Like many things in Waterloo, this event – which was also sponsored by a company whose CEO was a RIM co-op student – can be explained by the global technology giant’s massive corporate presence here. But programmers at the event, of all places, joined in the swelling chorus taking pot shots at RIM, which has seen its global market share dwindle over the past year and its stock price collapse by more than 70 per cent.

It is yet another tense week for RIM, which reports earnings on Thursday after market close – earnings that, though likely grim, had much of their potential negative impact deflated by a pre-announcement on Dec. 2. It was then RIM said it was taking a pre-tax hit of $485-million to revalue inventory of its poor-selling PlayBook, would ship less BlackBerrys in the fourth quarter than in the third (when it shipped about 14.1 million to channel partners), and would not meet previous earnings guidance – the third downward revision this year.

The company just hasn’t been able to catch a break recently, including not just a highly embarrassing episode where two drunken executives had to be restrained on an Air Canada flight to Beijing but a serious stampede at a device launch in Indonesia, where numerous people were hospitalized. The company has also been hounded by calls from Bay and Wall Streets to radically alter the business, replace the two co-CEOs Mike Lazaridis and Jim Balsillie, or break up and sell the business – which remains profitable and debt-free, with more than 70-million paying users.

That explains, in part, the reactions of RIM employees to the playful jabs tossed their way at the Huether Hotel – at times, joking and dismissive at the almost absurd situation in which RIM, once the dominant smartphone player globally, now finds itself; or, proud and defensive, intimately knowledgeable of the challenge mounted by Apple Inc.’s iPhone and phones running Google Inc.’s Android operating system.

The two co-CEOs talk frequently of the company being in “transition,” that the problems will dissipate once the company shifts to its new operating BlackBerry 10 operating system – renamed from BBX because of a trademark dispute – and brings out a batch of powerful new smartphones. But the recent launch of new BlackBerrys, which in August was touted as the biggest global launch in the company’s history, has failed as a stop-gap measure: RIM’s market share in the United States, its most valuable market, has shrivelled to just 9 per cent from 24 per cent a year earlier. Though RIM is increasing market share in many emerging markets, such as the Middle East and Africa, it is shrinking elsewhere, such as former strongholds such as Latin America, where cheap Android devices are flooding the market.

“We believe the stakes for RIM have never been higher,” UBS analyst Phillip Huang wrote in a recent note to clients, noting it may be time for the board or directors to look at replacing the CEOs (who are also co-chairmen of the board), shifting strategy or selling the business entirely before the shares fall further south.

Analysts are anticipating RIM’s earnings on Thursday to be in line with the pre-announced results, including revenue coming in “slightly lower” than the $5.3-billion figure the company previously guided. But those numbers were dismal, and several bearish analysts, including Kris Thompson at National Bank Financial, expect further BlackBerry sales declines moving into 2012. The company’s core corporate clients are also increasingly at risk as the iPhone is allowed into more workplaces, in an era after RIM suffered an embarrassing global service outage in October.

There is also the added risk that RIM is attempting this turnaround while drastically reducing its head count. Many expect recent rounds of layoffs to continue as the company tries to streamline its operations, and one source close to the company said the process has been executed haphazardly. Meanwhile, RIM needs to maintain morale, retain its valuable employees as Waterloo’s burgeoning tech scene offers more positive workplaces, and maintain some semblance of investor confidence. Many at the company, however, remain highly motivated, proud of what RIM has accomplished and are energized despite the turmoil around them.

“In my heart, I believe RIM is going to be a player,” one former executive said. “But the question in my mind is, what is that going to look like (in the future)?”

 
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