Friday, RIM gave investors a triple dose of ad news - profits and revenues missed expectations, Blackberry 10 was delayed (again) and the company announced it will lay off 5000 employees. Investors responded by hammering the stock price to the tune of a 19% drop. That brought the company's market value to 3.8 billion dollars, approximately 5% of what it was at its peak in 2008.
There were two possible silver linings to all the bad news - the company still has $2.2 billion in cash and it has no debt. The question becomes, are dry rooms on a sinking ship worth any price?
RIM told investors that the Blackberry 10 devices will begin to be sold sometime in 2013. That could mean as early as January or as late as the Christmas shopping season, and if history has taught us anything about RIM's time lines I would expect it to be no earlier than late Q2. What does that mean for the company?
In the time leading up to the release of BB10 it means the company is going to be hard-pressed to keep that cash cushion from deflating like a cheap air mattress. The company has already said they expect to spend $350 million in order to layoff those 5,000 employees mentioned earlier. They have also struggled to control inventory as they consistently overproduce the underselling Blackberry devices. Revenues dropped 33% in Q2 as a result, and this will continue to worsen as companies become more willing to explore bring-your-own-device polices and even continue to make iOS, Android or Windows 8 their enterprise system of choice. For a company that values cash-on-hand as much as RIM, they do not seem to have the tools necessary to turn the cash-flow pipeline back on in the short term.
If they do survive until they release Blackberry 10 (and I think they will), the technology may already be obsolete. That is unless you buy into the thought that RIM would have released something that was an entire year ahead of anything Apple, Google, and Microsoft had they released it this year. It has been a number of years since Apple has produced a big leap in their iOS (no Siri was not a significant leap no matter how many commercials it does with Samuel L. Jackson). With reports pointing to a new 4" screen on what should be the iPhone 5, that leap may be on the way shortly. Google has just released a tablet that runs their Jelly Bean operating system (click here to see my first walk through on my Galaxy Nexus), which builds on the ICS idea of integrating all of a user's devices while also providing a consistent user interface experience and feel. Microsoft launched, with little fanfare, the Nokia Lumia which is scheduled to receive the Windows 8 update as soon as it is released (probably by Christmas) and is currently running a similar operating system known as Metro. Windows 8 will be Microsoft's answer to Android's consistent user experience and mobile mentality. Given that these devices will have at least 9 months to divvy-up the smartphone market, do we really expect that RIM will be able to make inroads where the idea of switching devices and learning a new OS is both cost and time prohibitive?
The other hurdle that RIM has is the trend of product/brand ecosystems started by Apple and copied by Android and Windows 8. Recently, a Bank of America analyst said he predicts RIM will not be able to effectively create an ecosystem the way its competitors have. RIM disagrees (as if they could say anything else) but the question is, with the company laying off 5000 employees and struggling t release an already delayed product, who is going to have the bandwidth to work on creating an ecosystem? If they are unable to create a stand-alone ecosystem, the BlackBerry 10 won't be able to make any inroads in a market where ease-of-use and integration are valued much more than technical specs and features. It took Google a few years to figure this out as their phones were based on open source coding that allowed limitless customization and functionality, but continued to be less popular than the easy-to-use iPhone and its simple out of the box setup and industrial form factor. If RIM is slow to create this type of integration, it may be the final death knoll for the company as we know it.
So what is my prediction for the company over the next two years? At a market cap of only $3.8 billion, and an inability to impress customers, investors, or anyone that isn't an employee's own mother, I think RIM has two possible futures.
One is a dramatic sell-off of all their current assets such as production lines and patents and a departure to a completely different core competency. The patents are valued somewhere between $5 and $8 billion which would re-inflate the air mattress for a long enough period that RIM could reinvent itself into a completely different company. Before you say this is a crazy idea you may want to think back to HP deciding they were going to do this before realizing they were actually decent at their current core competencies. If Kodak had shifted its focus, could they be a competitor of Corningware in making glass for these high-end devices or even making the cameras for them instead of trying to sell us stand alone cameras that were marginally better than the ones found on our phone+text+email+internet browsing+gaming+etc devices? A dramatic sell and shift mentality may be exactly what is needed to keep RIM independent.
The other future is the one I personally think has the higher likelihood of happening. This is the future where RIM is acquired for somewhere between $9-15 billion and is absorbed into another company. The main mystery in this scenario is: who does the buying? Apple already makes their own devices, and although they are sitting on an Everest of cash, it seems like a high price tag just to keep a competitor from the table. I would say Google would make an interesting match since they are both relatively young companies and Google could gather some synergy from RIM and use their production skills to become an OEM. Alas, Google recently bought a good portion of Motorola's mobile capability which I suspect is for the exact reasons mentioned above, so they're off the list as well. That leaves us one possible suitor - Microsoft. The software giant is trying to play catch up in the post-PC world and this acquisition would let them skip a few grades. Microsoft also has a little experience of their own as a manufacturer with their Xbox devices, so they've already learned some of the difficult lessons from that process that could be applied here.
So there you have it - in 2014 we will have 3 companies, Microsoft, Apple, and Google, all making their own devices and running their own operating system with fully cooked-in ecosystems to house all your pictures, documents, emails, music, and whatever other information you deem to be so vital you can't be without it. Check back in 2 years and see how accurate I was.
There were two possible silver linings to all the bad news - the company still has $2.2 billion in cash and it has no debt. The question becomes, are dry rooms on a sinking ship worth any price?
RIM told investors that the Blackberry 10 devices will begin to be sold sometime in 2013. That could mean as early as January or as late as the Christmas shopping season, and if history has taught us anything about RIM's time lines I would expect it to be no earlier than late Q2. What does that mean for the company?
In the time leading up to the release of BB10 it means the company is going to be hard-pressed to keep that cash cushion from deflating like a cheap air mattress. The company has already said they expect to spend $350 million in order to layoff those 5,000 employees mentioned earlier. They have also struggled to control inventory as they consistently overproduce the underselling Blackberry devices. Revenues dropped 33% in Q2 as a result, and this will continue to worsen as companies become more willing to explore bring-your-own-device polices and even continue to make iOS, Android or Windows 8 their enterprise system of choice. For a company that values cash-on-hand as much as RIM, they do not seem to have the tools necessary to turn the cash-flow pipeline back on in the short term.
If they do survive until they release Blackberry 10 (and I think they will), the technology may already be obsolete. That is unless you buy into the thought that RIM would have released something that was an entire year ahead of anything Apple, Google, and Microsoft had they released it this year. It has been a number of years since Apple has produced a big leap in their iOS (no Siri was not a significant leap no matter how many commercials it does with Samuel L. Jackson). With reports pointing to a new 4" screen on what should be the iPhone 5, that leap may be on the way shortly. Google has just released a tablet that runs their Jelly Bean operating system (click here to see my first walk through on my Galaxy Nexus), which builds on the ICS idea of integrating all of a user's devices while also providing a consistent user interface experience and feel. Microsoft launched, with little fanfare, the Nokia Lumia which is scheduled to receive the Windows 8 update as soon as it is released (probably by Christmas) and is currently running a similar operating system known as Metro. Windows 8 will be Microsoft's answer to Android's consistent user experience and mobile mentality. Given that these devices will have at least 9 months to divvy-up the smartphone market, do we really expect that RIM will be able to make inroads where the idea of switching devices and learning a new OS is both cost and time prohibitive?
The other hurdle that RIM has is the trend of product/brand ecosystems started by Apple and copied by Android and Windows 8. Recently, a Bank of America analyst said he predicts RIM will not be able to effectively create an ecosystem the way its competitors have. RIM disagrees (as if they could say anything else) but the question is, with the company laying off 5000 employees and struggling t release an already delayed product, who is going to have the bandwidth to work on creating an ecosystem? If they are unable to create a stand-alone ecosystem, the BlackBerry 10 won't be able to make any inroads in a market where ease-of-use and integration are valued much more than technical specs and features. It took Google a few years to figure this out as their phones were based on open source coding that allowed limitless customization and functionality, but continued to be less popular than the easy-to-use iPhone and its simple out of the box setup and industrial form factor. If RIM is slow to create this type of integration, it may be the final death knoll for the company as we know it.
So what is my prediction for the company over the next two years? At a market cap of only $3.8 billion, and an inability to impress customers, investors, or anyone that isn't an employee's own mother, I think RIM has two possible futures.
One is a dramatic sell-off of all their current assets such as production lines and patents and a departure to a completely different core competency. The patents are valued somewhere between $5 and $8 billion which would re-inflate the air mattress for a long enough period that RIM could reinvent itself into a completely different company. Before you say this is a crazy idea you may want to think back to HP deciding they were going to do this before realizing they were actually decent at their current core competencies. If Kodak had shifted its focus, could they be a competitor of Corningware in making glass for these high-end devices or even making the cameras for them instead of trying to sell us stand alone cameras that were marginally better than the ones found on our phone+text+email+internet browsing+gaming+etc devices? A dramatic sell and shift mentality may be exactly what is needed to keep RIM independent.
The other future is the one I personally think has the higher likelihood of happening. This is the future where RIM is acquired for somewhere between $9-15 billion and is absorbed into another company. The main mystery in this scenario is: who does the buying? Apple already makes their own devices, and although they are sitting on an Everest of cash, it seems like a high price tag just to keep a competitor from the table. I would say Google would make an interesting match since they are both relatively young companies and Google could gather some synergy from RIM and use their production skills to become an OEM. Alas, Google recently bought a good portion of Motorola's mobile capability which I suspect is for the exact reasons mentioned above, so they're off the list as well. That leaves us one possible suitor - Microsoft. The software giant is trying to play catch up in the post-PC world and this acquisition would let them skip a few grades. Microsoft also has a little experience of their own as a manufacturer with their Xbox devices, so they've already learned some of the difficult lessons from that process that could be applied here.
So there you have it - in 2014 we will have 3 companies, Microsoft, Apple, and Google, all making their own devices and running their own operating system with fully cooked-in ecosystems to house all your pictures, documents, emails, music, and whatever other information you deem to be so vital you can't be without it. Check back in 2 years and see how accurate I was.
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