During the height of the world’s addiction to the device known as “the CrackBerry,” it would have been difficult to imagine the grim choices now facing Research In Motion Ltd.
Each quarterly report brought new and convincing evidence that Canada’s technology giant was unstoppable. RIM would routinely demolish the best forecasts of Bay Street and Wall Street – just as Apple Inc. does today – with massive increases in revenue, profit and BlackBerry shipments. Its share price flirted with the $150 mark, briefly making it larger than Royal Bank of Canada. That was less than four years ago; it feels like an eternity.
RIM’s downhill slide began slowly, with a few signs that Apple and other rivals like Samsung Electronics Co. Ltd. were winning over consumers with slick phones and software. Then it accelerated into a full-blown crisis. Today, the company’s outlook is so murky – and its U.S. business is disintegrating so quickly – that it no longer feels confident enough to predict how many BlackBerrys it thinks it can sell in the next quarter.
So, for the first time, RIM is doing what companies in crisis do: It’s facing its troubles head-on and putting every option on the table. Under new leadership, a litany of ideas that would have once been considered far too extreme are now all in play, from licensing the closely-guarded BlackBerry software to spinning off entire divisions or putting the whole company up for sale.
With year-end results released in late March that showed just how bad things have become – the company reported a quarterly loss for the first time in seven years – new chief executive officer Thorsten Heins vowed to undertake a “comprehensive review” of the business.
“This is not without risks and challenges,” he says. “And there’s no guarantee of success.” But for a company that has lost more than 90 per cent of its value, there’s also little choice. The Globe and Mail spoke to current and former RIM insiders, wireless industry experts and analysts to assess some of the most radical options that Mr. Heins and the directors could pursue.
1. SELL THE COMPANY
Mr. Heins did not rule out putting the company up for sale, an option that was never discussed openly during the tenure of former co-CEOs Jim Balsillie and Mike Lazaridis.
Whether anyone wants to buy it, of course, is another question. The technology industry is notoriously fast-moving; consumer technology moves even faster. The wireless handset business, which sees consumers replace their phones more frequently than TVs or even desktop computers, is almost entirely unpredictable. So buying a failing handset business is a very risky investment.
“I don’t think there’s any bidder,” says Peter Misek, an analyst with Jefferies & Co. Inc. “I don’t think anybody’s been able to get their arms around the rate of decline.”
That doesn’t mean companies have not looked at RIM. Nokia Corp. and Microsoft Corp., which have teamed up to run Windows Phone on Nokia’s new smartphones, looked at making a bid for RIM, sources previously told The Globe, but withdrew when it became clear how quickly RIM’s market share in the United States was dropping.
The complexity of RIM’s business model is another factor for a potential buyer. RIM doesn’t just make BlackBerrys, nor does it simply offer wireless service. The company has created an intricate web of secure servers on different continents that send encrypted data traffic in and out of almost every wireless carrier on Earth, and basically every Fortune 500 company. RIM also has around 18,000 employees, around the globe, in everything from advanced R&D to highly specific tech support roles. It would not be an easy acquisition for even the biggest companies, such as Microsoft.
“Selling this company would be quite the undertaking,” says National Bank Financial analyst Kris Thompson, who is quite bearish on the chances of a RIM takeover, even from a private equity firm that might find the company’s cheap valuation compelling. “How is private equity going to go in and clean this up? They have quite the organization. I think an outright sale to turn this company around is probably not in the cards.”
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