RIM Can Survive Only by Making Tough Decisions Quickly

By Wayne Rash  |  Posted 2012-07-01

RIM Can Survive Only by Making Tough Decisions Quickly

Research In Motion€™s earnings call showing huge losses by the Waterloo, Ontario-based company was not a huge surprise. Hardly anyone was expecting good results. But what followed was a series of surprises that went off like depth charges around a sinking submarine.

BlackBerry 10 wouldn€™t arrive until the first quarter of 2013, and there will be 5,000 layoffs. Couple that with the earlier announcement that RIM had hired JPMorgan and RBC Capital to review its strategic options, and the picture is bleak.

So it€™s no wonder that RIM opened June 29 off 15 percent on Nasdaq and then continued to fall. The market clearly has lost faith in RIM€™s ability to hang on for the next six to eight months until BlackBerry 10 arrives. This is made worse when everyone realizes that BlackBerry 10 is RIM€™s last hope. If BB10 is dead on arrival, then it€™s not going to be a long good-bye. RIM as we know it will perish.

So the real question now is what are RIM€™s options? Obviously, the hiring of two major investment banks that deal in mergers and acquisitions means that RIM is planning to sell something. But it may not be the company itself. RIM may have decided that it€™s time to offload its device manufacturing and move to contract manufacturing, which is what most other smartphone companies do.

Notably, the companies that are making money on smartphones aren€™t making them in Canada, and most aren€™t making anything themselves. While Samsung, which is the world€™s largest phone maker, does build its own phones, Samsung is also one of the world€™s largest contract manufacturers. But Apple doesn€™t make its own phones; those come from Foxconn factories in China. Google doesn€™t make its phones either. Google-branded phones and tablets are made by somebody else, such as Asus or HTC.

Having Samsung, for example, build the BlackBerry 10 device would mean that the company can focus on its software and its data-delivery business, which is RIM€™s strong suit. When I saw the BlackBerry 10 prototype platform at the BlackBerry World conference in May, I didn€™t see any distinguishing feature that wasn€™t done in software. In other words, there wasn€™t anything in the BB10 device that couldn€™t be made by a generic smartphone maker.

At least by moving to a contract manufacturing model, RIM could work with companies that have great expertise in bringing hardware platforms to market and meeting specific and detailed requirements. The Apple iPhone 4S is an excellent example of what can be done with contract manufacturing. There€™s a strong likelihood that adopting a similar model would give RIM lower costs without any loss of quality or control.

RIM Might Survive as a Software Company

But perhaps RIM would do better getting out of the hardware business entirely. Perhaps the company could license its software to other companies, and retain control of the BlackBerry data-delivery network. BlackBerry Enterprise Server would be impossible to replace for many of RIM€™s biggest customers and BlackBerry email works better than pretty much everything else.

Moving to a software-only licensing model would mean that RIM would be a smaller company, but it could provide the software platform that its customers depend on, a level of security that€™s not available elsewhere and give its customers confidence that the company isn€™t going away. It would also prevent existing and potential customers from abandoning BlackBerry purchases, since they would know that their devices would keep working, even if someone else started making them.

Right now, the biggest fear that BlackBerry users have is that they€™ll be abandoned. If RIM dies, they don€™t just have an orphaned device, they have a device that can make phone calls and send Short Message Service communication and not much else. Those functions that depend on BlackBerry servers, and that includes all email, will die with it. That alone is enough to have existing customers looking at alternatives. If your existing customers abandon you, you€™re toast, because you lose the revenue to keep the network running.

Fortunately, RIM still has options. The company has $2 billion in the bank and no debt. With the cutbacks that were announced along with the earnings call, the company can stay alive a while longer, but doing so may be like eating your seed corn: You stay alive, but there€™s nothing left to build on for tomorrow. Your life is prolonged, but the ultimate outcome doesn€™t change.

What this boils down to is that RIM needs to make some tough decisions, and it needs to make them quickly. They can sell the company to someone else, perhaps Microsoft, which badly wants to be a force in the enterprise phone market. They can move to contract manufacturing, which would save money, and perhaps result in greater agility and maybe even a better product. Or RIM can become a software company. But at this point, it doesn€™t seem that going it alone and hoping for salvation in the form of BlackBerry 10 is the right answer.

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