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Research In Motion - The Dark Clouds Continue to Hover
In the late 1990s Research In Motion (RIMM) introduced the BlackBerry, which truly revolutionized the mobile telecommunication industry. Indeed, BlackBerry products and services are currently used by millions of customers worldwide to stay connected to both people and content. In addition, corporate clients became enamored with RIMM’s proprietary email and messaging servers, and the company’s top line certainly reflected this, with revenues going from $294 million in fiscal 2003 to $18.4 billion at the end of fiscal 2011 (year ended February 25, 2012).
However, the competitive landscape has changed quite a lot of late for Research In Motion, which once commanded more than half of the American smartphone market and now accounts for approximately 10% of the market. Indeed, Apple’s (AAPL) iPhone and Google’s (GOOG) Android software have recently taken a big bite out of RIMM’s market share. Moreover, Research In Motion has been rather slow at rolling out new Blackberry models, and customers began to turn away from its seemingly antiquated lineup for more consumer-focused offerings. In early August, the company unveiled plans to introduce five new BlackBerry smartphones based on its BlackBerry 7 Operating System, which included its first all-touch device. Separately, the company introduced its PlayBook tablet in early fiscal 2011 and the response has been far from impressive due to a host of factors, including recent shifts in the competitive dynamics of the tablet market and a delay in the release of the PlayBook OS 2.0 software.
Most recently, the company reported particularly lackluster first-quarter results, with an ultra-competitive marketplace taking a hefty toll on Research In Motion’s fortunes. Notably, RIMM shipped 7.8 million BlackBerry smartphones and about 260,000 Blackberry PlayBook tablets during the quarter, as compared to 13.2 million and 500,000 respective devices a year ago. Seemingly, more and more potential customers are turning to the iPhone and those phones running on the Android software.
And to make matters worse, management announced that the much-heralded launch of the BlackBerry 10 mobile computing platform has once again been postponed from earlier estimates of the latter half of this year to the first quarter of calendar 2013. Over the last few weeks, the company’s research development team has supposedly made major strides in the development of key features for the new platform. However, the integration of these features and the associated large volume of code into the platform are proving to be more time consuming than originally expected. Naturally, management’s aim is to ensure the quality and reliability of the new platform and has decided not to put the cart before the horse.
In response to its current operating environment, Research In Motion initiated its Cost Optimization and Resource Efficiency (CORE) program in March of this year. The program’s aim is to deliver operational savings through a host of initiatives, with management hoping to achieve at least $1 billion in savings by the end of fiscal 2013. In this vein, the company has reduced the number of layers of management to bolster efficiency and accountability, streamlined its supply chain, which included the consolidation of its manufacturing footprint from 10 external sites to three, and outsourced non-core functions and key parts of RIMM’s Global Repair operations. Most recently, Research In Motion announced it was beginning a global workforce reduction of roughly 5,000 employees, which ought to be completed by the end of fiscal 2013.
Significant changes may well be on the horizon, given management’s late May announcement that it has engaged J.P. Morgan Securities LLC and RBC Capital Markets to assist the company and its board of directors in reviewing Research In Motion’s business and financial performance. In addition, they are evaluating the feasibility of various financial strategies, including opportunities to leverage the BlackBerry platform through partnerships, licensing opportunities, and strategic business model alternatives. The pending rollout of the aforementioned BlackBerry 10 platform may well turnout to be the company’s saving grace. However, prospects until that time are far from appealing, as an increasingly competitive environment, lower handset volumes, the delay of the new platform, and management’s plan to continue to aggressively boost sales of BlackBerry 7 handheld devices are all likely to constrain both the top and bottom lines.
For a more detailed look at Research In Motion’s prospects and the investment merits of the stock, subscribers may wish to consult our full-page report in The Value Line Investment Survey.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.