When RIM fired its previous team of co-CEOs, Jim Balsillie and Mike Lazaridis, but replaced them with quiet insider Thorsten Heins, there was concern that the latter was too closely wedded to RIM's old guard to be able to deliver the kind of change the company needs. That idea has just been chucked squarely out the window -- for better or worse, Thorsten has shown his commitment to revamping RIM, starting with some major housecleaning.
Basillie, who had taken up a post
on RIM's board, is altogether gone, as is the company's CTO, David Yach, and its COO, Jim Rowan. Their firings are just the flagship announcement of a horrifically bad quarter. RIM's fiscal Q4 2012 revenue was $4.2B, down 19% from Q3, below the $4.54B analysts expected, and even farther below the $4.6-$4.9B RIM predicted in its Q3 call. Sales outside the US, UK, and Canada accounted for 68% of the company's revenue, up from 61% in Q3. Worst of all, the company's net loss for Q4 2012 was $125 million, down from a net profit of $934M just last year.
Ok, So Now What?
We'll let Thorsten answer this directly.
I am focused on creating long-term value for this company, and I'm committed to do whatever it takes to deliver on that commitment. We plan to refocus on the enterprise business and capitalize on our leading position in this segment... We believe that BlackBerry cannot succeed if we try to be everybody's darling and all things to all people. Therefore, we plan to build on our strengths to go after targeted consumer segments, and we will seek strong partnerships to deliver those consumer features and content that are not central to the BlackBerry valuable position, for example, media consumption applications.
Analysts have responded well to both Heins actions and the company's abysmal performance; RIM's stock is actually up 7% since yesterday, rising $1 to $14.80, from $13.80. This, despite the fact that the company's announcement contained another bombshell -- it's suspending any attempt to give guidance on its future performance. From the press release: "The company expects continued pressure on revenue and earnings throughout fiscal 2013. Due to a desire to focus on long term value creation and the current business environment, RIM will no longer provide specific quantitative guidance."
What RIM is really saying here is that it no longer trusts its own ability to predict future sales and needs to forestall a crisis in investor confidence. Missing the mid-point of your Q3 guidance by 13% is bad, but the company's gross margin also tumbled, from 44.15% in 2011 to 33.44% for FY 2012. RIM's profit margin fell even more, from 17.13% in 2011 to 6.31% in FY 2012.
The reason RIM's investors aren't punishing the stock is straightforward. Unlike Lazaridis and Basillie, whose response to the crisis presented by Android
and the iPhone consisted of stuffing their fingers in their ears, Heins actions convey three simple words: "I get it." Their response is equivalent to saying "Ok, maybe you do." Until now, the hammering Research in Motion's stock price took wasn't really justified by the company's financials. It was instead driven by the co-CEO's utter inability to recognize a problem or articulate a solution. Heins, with his focus on enterprise business, potential license partners, and canning the old guard, says maybe he's got different plans.
Everything now rests on BlackBerry London
and BlackBerry OS 10. If it fails, RIM's hardware business goes with it. The company might survive in some form as a software company or network provider, but it won't be able to salvage its handset business. Given that hardware still accounts for 68% of the company's revenue, any transition to a software company would be rocky at best.
We'll know within the year whether RIM can pull itself out of this slide or not. Either way, we'll have ringside seats to one of the most impressive comebacks or unhappy collapses in recent memory.