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Summary:

Among several options Research In Motion is currently reviewing for its continued transition is the sale of its BlackBerry handset division. That would keep the company alive, but only as a services provider; a bad situation given that 79 percent of RIM’s revenues come from hardware.

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Among several options that Research In Motion is currently reviewing for its continued transition is the sale of its BlackBerry handset division. The company last month said it was working with J.P. Morgan Securities LLC and RBC Capital Markets to determine next steps as RIM expects an operating loss for its first fiscal quarter of 2013.

The Sunday Times (registration required) first reported the news with Reuters noting that RIM may split its hardware business from its messaging service, which is still widely used by enterprises and consumers around the world. The Times suggests that Amazon and Facebook would be most likely interested; Apple, Google, and Microsoft all have their own software platform for smartphones and tablets.

The situation for RIM is both dire and sad to see, but not unexpected. Indeed in my year-end predictions post for 2012 last December, one of my 16 mobile prognostications was this:

Research In Motion will no longer exist as we know it today. I’d like to be wrong on this, as competition is good for all, but RIM’s missteps and late reactions to competition finally exact a toll: By year-end, I suspect the company will be purchased, mainly for its patents, or will refocus as a services-oriented entity.

I presume that any sale of RIM’s hardware unit would include the patents, essentially leaving the company as a services business. On the surface that may not sound like a bad play, since RIM’s hardware sales growth has lagged the competition as both iPhones and Android devices have invaded the enterprise.

The problem is: Selling off the hardware unit will also rid RIM of the majority of its revenue stream. In the third fiscal quarter of 2011, which was reported this past December, RIM said that hardware sales accounted for 79 percent of the company’s revenue. And that’s with slowing hardware sales. Giving up the hardware unit will simply give RIM a bigger bankroll to keep the services division alive for as long as possible, meaning the company will be smaller and relegated from a one-time market-maker to a has-been with little power.

As I’ve followed along and reported RIM’s decline these past few years, the BlackBerry faithful keep offering commentary of a transition that will eventually help or the next version of an operating system that will put RIM back on top. While the optimism is welcome, the stark facts remain and are leading the company down a path that will never return it to prominence in the hardware market.

The company has been in constant transition since the iPhone arrived in 2007, even if the company was in denial of sweeping changed needed. And once it did recognize the need for change, it reacted too slow and too late. At this point, the only questions I have left are: How will RIM fare as a services-only provider if the hardware unit is jettisoned and who will tweak the BlackBerry phone to its liking and make a run as the fourth player in the smartphone market?

  1. Reblogged this on projectzme and commented:
    I still stand by a post i wrote a month or so ago. Rim will flog its data network and enterprise division off to either Google or Apple who are desperate to get claws into corp infrastructure and have no solid offerings of their own. And while i could see Facebook looking for a phone manufacturer to be honest it could base a Facebook phone on the already known for messaging blackberry however it’s a terrible form factor..

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  2. Reblogged this on Olukayode Aluko, MNSE.

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  3. There’s an article in today’s Globe that is a little more even-handed, and less self-interested in validating old prognostications with current rumours than this piece.

    Pay particular attention to the part where “the services side of the business is undeniably valuable… [but] RIM’s hardware sales account for roughly 80 per cent of RIM’s revenue” and the fact that “two former RIM executives said on Sunday that top managers do not currently take the idea seriously, and one said that ‘splitting the two would accomplish nothing'”.

    You may well be right, and it may well happen, but there’s really nothing to suggest it in the single source your article seems to be based on.

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    1. Agreed Dave, it may not happen and to be honest, I don’t know that it would be good if it did happen. I noted that in the post and pointed to the high revenue fraction of total revenues. Then again, the Globe isn’t quoting official statements from RIM denying the possibility. It’s hard to say at this point for sure. Thanks!

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  4. RIM has strange culture and self distruct political environment.

    In RIM if a new hired person figure out major problem and introduce efficient approach, both manager and his buddy group member will proof their wrong approach works. just like someone point out driving a car is right way, pushing a car is wrong way, then both manager and his buddy group member will hate you, and proof that 3 person can also move the car by pushing it. cheating email will be sent to some vice president, saying like: see, the car moving, pushing a car is a natural part of the process, in order to deny new hired contribution of introducing skill of drive a car, they have to deny merit of driving a car.

    It is very strange company culture and strange company political environment, it promote stealing and cheating skill. RIM’s management may be a typical instance in MBA course.

    This culture deny or steal hardworking team members’ contribution/innovation, generate strange political environment, destroy RIM.

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