It must be comforting for the Research in Motion (NSDQ: RIMM) employees who won’t lose their jobs this summer to know that their co-CEOs work very well together in managing the complexity of a business that is in the midst of a downward spiral.
The numbers that emerged from RIM’s first-quarter earnings call weren’t all that surprising, since the company warned investors in April that things weren’t looking good. But it was a bit surprising to learn that just weeks after RIM insisted that the first quarter would be a one-time blip and that everything would be fine during the rest of 2011 how poorly the company expects itself to fare over the next several quarters.
Earnings targets for the current quarter were slashed 35 percent compared to what analysts had been predicting earlier on Thursday based on RIM’s prior guidance. Earnings targets for the full fiscal year were cut 25 percent from numbers cited in late April when RIM insisted that it would make up the slack caused by a delay of the next-generation BlackBerrys over the remainder of the year, and therefore wouldn’t have to change that guidance.
Yet the two men who run RIM–Mike Lazaridis and Jim Balsillie–out of Waterloo, Ontario, insisted on a conference call following the earnings announcement that they work best as a team, responding to criticism from corporate-governance experts who generally favor the separation of the chairman and CEO roles at major corporations. Lazaridis and Balsillie are both co-CEOs and co-chairman of RIM’s eight-person board, which is unusual to say the least at a company of RIM’s size in the technology industry.
Judging by RIM’s performance over the past year it’s hard to see how they can evaluate their work so highly.
—The Gathering (Non-BlackBerry) Storm: This is a company with a serious problem: its next-generation BlackBerry 7 models are not ready because of a late decision to upgrade the chipset for that generation of phones, which caused delays in the wireless carrier certification process that all new phones must pass. The BlackBerry 9900 and 9930 will now miss the back-to-school shopping season when RIM had initially hoped to ship them earlier in the summer, and they won’t start making a difference to the bottom line until the end of the current quarter, which closes around the end of August.
Lazaridis also characterized the two new Bold smartphones as “messaging” devices that are perhaps best-suited for markets where “cost is at a premium,” which implies the margins on those devices will not be great. He went on to say that RIM’s first phones based on the QNX software at the heart of the BlackBerry tablet were “top of the line” devices, but they won’t arrive until “early 2012.”
That means RIM is about to go into the back-to-school season with basically nothing new. And that it’s going to go into the holiday shopping season with phones based on a familiar operating system that is losing steam with phone buyers in the U.S. And that it won’t have another high-end premium phone until early 2012 at best that could perhaps reverse the steady downward trend in RIM’s average selling prices since last year. And, to top it all off, they’ll have to convince BlackBerry developers to stick with RIM as it manages the transition to a new operating system that will require developers to optimize their applications in order for them to look their best on RIM’s top-of-the-line phone. Oh, and Apple (NSDQ: AAPL) is likely to release the iPhone 5 this fall, probably right around the same time Google’s Ice Cream Sandwich version of Android is released to partners.
In other words, there’s nothing on the horizon in the next six months for RIM that is going to boost the average selling price of the BlackBerry to levels previously enjoyed, which means it might likely have to cut prices even further just to stay relevant. And it’s clear that while the Playbook tablet launch wasn’t exactly a disaster at 500,000 units shipped, nor is it selling fast enough to make up for the downturn in the flagship smartphone division.
That means an unspecified number of RIM employees–many of whom probably had little influence over the decisions that got the company to this point–are going to have to lose their jobs to prevent profits from absolutely falling off a cliff. Executives wouldn’t discuss just how deeply they plan to cut, but given how far they cut their earnings expectations, they are clearly gearing for a slowdown in business. They did, however, insist they were near the end of the “transition” between the older BlackBerry lineup and newer models.
—Fun? Maybe For You: “This is fun,” Lazaridis said during the conference call, of his 20-year partnership with Balsillie. “We’re changing the world.”
The truth is that RIM hasn’t produced anything that has changed the world in a very long time. No one would deny that RIM did indeed help change the world with one of the most iconic mobile products ever produced over the last 20 years. But the technology industry–and the mobile world in particular–is very much a “what have you done for me lately?” world, and RIM executives will never be caught answering that question honestly in public.
The smartphone market is still growing at a pace in which there’s room for multiple players to grow without gaining market share, but that won’t last forever, and RIM doesn’t seem prepared for that certainty. On a day when they admitted just how bleak the rest of 2011 will be for RIM, during a public conference call in which they confirmed RIM’s lack of both vision and execution over the past year, it seemed very odd for RIM’s two leaders to spend ten minutes complimenting each other on how just how well they work together.