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RIM CEO Thorsten Heins's Brave Face Masks Limited Options For BlackBerry

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First Posted: 03/30/2012 11:49 am Updated: 06/07/2012 3:55 pm


By Alastair Sharp

TORONTO (Reuters) - A candid diagnosis of the troubles facing Research In Motion delivered by freshman Chief Executive Thorsten Heins was a welcome change for its stakeholders, but his prescription for returning the BlackBerry maker to health might be hard to swallow.

RIM recorded its first quarterly loss in seven years on Thursday and said it would no longer issue financial forecasts. A prolonged slump in sales of its smartphones shows no signs of abating, it said, at least until it can launch its next-generation line-up later this year.

Heins, saying RIM could not be "all things to all people," laid out a broad plan to bring in partners to help RIM plug the BlackBerry's weaknesses in consumer features such as music and video. RIM will also seek deals to license its software and highly secure network to other providers. He even said he might consider selling the company - once the pride of Canada - if the review pointed in that direction.

But his options, which might also include scaling back or exiting the hardware business entirely, are either hugely disruptive to the company, unlikely to happen, or both.

Still, investors seemed cheered by the straight talk, pushing its battered shares up almost 8 percent on Friday. That gave the stock some breathing room from its lowest in about eight years. It had dropped nearly 80 percent since February 2011.

For now, talk of a sale is premature. RIM has avoided any discussions with potential suitors since a management and board shuffle in January put Heins in charge, two sources with knowledge of the matter said.

"They are not having any dialogue with private equity or strategics," one source said.

The board, and in particular its newest member, value investor Prem Watsa, preferred to give Heins some time to turn things around, according to the source, who spoke on condition of anonymity because the discussion were private. "Prem Watsa is really very influential there now," the source said. "They want to give (Heins) the opportunity to keep his head down and focus on the business."

Watsa, known for big bets on what he considers downtrodden stocks, joined RIM's board in January after building a stake he has since doubled, making his Fairfax Financial Holdings the second-largest RIM investor behind Primecap Management Co.

A RIM spokeswoman declined to expand on the remarks Heins made on Thursday.

RIM sees a savior on the horizon in the BlackBerry 10, which uses a different platform than the one that powers its legacy BlackBerry phones.

But BlackBerry 10 hardware won't arrive until late in the year if RIM sticks to its schedule, and the competitive threats Heins alluded to in his Thursday conference call will likely have accelerated by then, leaving RIM further behind.

Ambitious handset makers such as HTC and Huawei may have an interest in licensing BlackBerry software to enhance their credentials for providing secure email to businesses and government agencies, said Neil Mawston from Strategy Analytics. But he sees only a limited appetite for striking a partnership with the struggling brand.

"CATCH A FALLING KNIFE"

Major deals are unlikely before the launch of BlackBerry 10, he said. "Potential partners or investors may want to know if the knife has stopped falling before they try to catch it."

It's not like RIM is in a strong negotiating position, with Google giving away its Android system, and Microsoft also in the mix with its revamped mobile software and dominance of office desktops.

"Coming to terms on the price will be challenging," said Alex Gauna from JMP Securities.

Given RIM's history of lagging the industry on getting the latest hardware specifications into its devices, outsourcing RIM's manufacturing to a fast mover such as Samsung would make sense, analysts say.

Such a move would result in a wholesale shrinking of RIM's workforce and cut out roughly 80 percent of its revenues, though it would also discard its most costly activities and drive its asking price down to a more attractive level.

Finally, RIM could offer up use of its proprietary network which compresses and encrypts data sent from its BlackBerry devices, useful in emerging economies where bandwidth is limited. But RIM may put too high a price on what it sees as its crown jewel.

"The value of that enterprise suite is questionable," Sterne Agee analyst Shaw Wu said in a phone interview. "If it was so good, the company would be doing a lot better."

TAKEOVER COULD FACE POLITICAL OBSTACLE

In the meantime, RIM is likely to have a tough time selling existing products. The company took a $267 million charge to write down the value of its BlackBerry 7 devices, which only launched in August. That suggests RIM has already started selling them below the cost of production or plans to do so.

Even with the smartphone market in the middle of a boom, RIM's volumes over the next year could actually drop 25 percent, Credit Suisse says. Existing devices are not competitive and RIM's share in global markets is rapidly eroding.

In the lower end of the smartphone market, improved Nokia devices could cut into RIM's share in the international markets, said Credit Suisse, which is keeping a "neutral" rating on the stock only because of the potential for a sale of the company.

Any talk of a sale also has to take account of the opinion of Canada's federal government, which can block any major takeover of a Canadian company if it decides the deal would not produce a loosely defined "net benefit" to the country.

"RIM is a financially and emotionally important company for Canada, so popular resistance to any merger or takeover could occur," Strategy Analytics' Mawston said.

The market now values RIM at about $7.4 billion, a far cry from the $36 billion valuation it commanded a year ago, but still an expensive risk for any buyer convinced they can do a better job.

"It is clear that the company is in survival mode," said Charter Equity analyst Ed Snyder, who has long tracked RIM and watched other once-leading companies such as Nokia, Motorola and Palm flail during turnaround efforts. "RIM is in a dire state of affairs."

(Reporting by Alastair Sharp in Toronto, additional reporting by Nadia Damouni in New York and Tenzin Pema in Bangalore)

Also on HuffPost:

Take a look at the slideshow to see some of the BlackBerry maker's biggest fails and flubs last year.
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  • Blackberry PlayBook Flops, Prices Slashed

    The PlayBook tablet, which was the BlackBerry maker's answer to the iPad, went on sale in April 2011. Since then, <a href="http://www.huffingtonpost.com/2012/01/03/blackberry-playbook-price-rim_n_1181167.html" target="_hplink">RIM has lost $485 million</a> on unsold units. At the beginning of January, <a href="http://www.huffingtonpost.com/2012/01/03/blackberry-playbook-price-rim_n_1181167.html" target="_hplink">RIM slashed the price of all models</a> of its tablet to $299. The special pricing will last until February 4. PlayBooks, which come in 16, 32 and 64 gigabyte models, typically retail for $499, $599 and $699, respectively, <a href="http://news.cnet.com/8301-1001_3-57351162-92/blackberry-playbook-price-now-$299-for-all-models/" target="_hplink">according to CNET</a>. In November, RIM temporarily <a href="http://www.huffingtonpost.com/2011/11/22/blackberry-playbook-price-drop_n_1107941.html" target="_hplink">slashed the price</a> of the 16GB version of the tablet to $199 at certain retail locations.

  • Network Outages

    In October, BlackBerry <a href="http://www.huffingtonpost.com/2011/10/13/blackberry-outage-2011-rim-says-services-returning_n_1008596.html" target="_hplink">suffered an outage that affected</a> many of its then 70-million worldwide users, leaving some of its customers in Asia, Europe, Latin American and Africa without service for as many as three days. Some users in the U.S. were affected, but not for as long a period.

  • Drunk Execs Disrupt International Flight

    In December, two RIM executives were fired after a flight they were on was forced to be diverted because the pair's "drunken rowdiness," <a href="http://www.huffingtonpost.com/2011/12/02/two-men-face-hefty-fine-a_0_n_1125214.html" target="_hplink">the AP reports</a>.

  • BlackBerry 10 Platform Delayed

    Research in Motion announced in December 2011 that its highly anticipated BlackBerry 10 platform won't be available until the end of 2012. <a href="http://www.huffingtonpost.com/2011/12/16/blackberry-10-phones-rim_n_1153314.html" target="_hplink">According to the AP</a>, the company claims the holdup is because the chipset needed for the phones running the platform won't be available until the middle of this year.

  • Stock Slides In 2011

    In 2011, <a href="http://www.dailyfinance.com/quote/nasdaq/research-in-motion-limited-usa/rimm" target="_hplink">RIM's stock</a> dropped <a href="http://www.huffingtonpost.com/2012/01/23/rim-ceos-jim-balsillie-mike-lazaridis_n_1222605.html#s629929&title=Lessien" target="_hplink">a massive 75 percent</a>.

  • Falling U.S. Market Share

    In less than a year, RIM's share of the U.S. smartphone market <a href="http://www.huffingtonpost.com/2012/01/23/rim-ceos-jim-balsillie-mike-lazaridis_n_1222605.html#s629929&title=Lessien" target="_hplink">dropped by almost 50 percent</a>, from <a href="http://www.comscore.com/Press_Events/Press_Releases/2011/3/comScore_Reports_January_2011_U.S._Mobile_Subscriber_Market_Share" target="_hplink">30.4 percent</a> in January 2011 to <a href="http://www.comscore.com/Press_Events/Press_Releases/2011/12/comScore_Reports_November_2011_U.S._Mobile_Subscriber_Market_Share" target="_hplink">16.6 percent</a> in November 2011. In 2009, <a href="http://www.huffingtonpost.com/2011/12/16/blackberry-10-phones-rim_n_1153314.html" target="_hplink">RIM controlled 44 percent</a> of the US smartphone market. (Pictured above is the HTC Desire HD Android, which runs on Google's much more popular Android platform.)

  • Investors Urge Company Sell Itself

    A nearly 75 percent drop in stock price in 2011 did not please investors. At the end of 2011, Jaguar Financial Corp, <a href="http://www.huffingtonpost.ca/2012/01/03/balsillie-lazaridis-rim-research-in-motion-jaguar-financial_n_1180885.html" target="_hplink">one of the largest investors</a> in RIM, called "for substantial corporate governance change and for a sale of RIM, whether as a whole or as separate parts." Vic Alboini, the chief executive of Jaguar Financial, <a href="http://www.bbc.co.uk/news/business-16393180" target="_hplink">told the BBC earlier this month</a> that RIM has "lost it." "The party is over, we believe, in terms of trying to design that cool, tech savvy smartphone," he said. "Microsoft has over $50 billion in cash, RIM has $1.5 billion. There is no way they'll be able to compete."

  • Exploding BlackBerry

    The family of 11-year-old Kian McCreath of Coventry, U.K., gave RIM some of its worst publicity in 2012, telling the media the boy was burned and left with permanent scarring when his BlackBerry Curve 9320 exploded. Although cell phones that are left to charge too long are known to explode, for RIM the news represented a horrible publicity disaster that came just weeks ahead of the launch of its BlackBerry 10.

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Filed by Catharine Smith  |