Market gives RIM CEO shuffle a thumbs-down

Research in Motion's new chief took the helm of the troubled BlackBerry maker brimming with optimism Monday, but an instantly negative stock market reaction suggested he'll have to show some real progress — and fast — to assuage unimpressed shareholders.

RIM shares were down more than seven per cent Monday morning after it announced big changes at the top, with Thorsten Heins in as CEO and longtime co-CEOs Jim Balsillie and Mike Lazaridis out. The two former heads were pushed from the executive suite but are still actively engaged as directors.

Heins, who has served as the company's chief operating officer, said he is certain of RIM's future as a key player in the smartphone race, despite analyst concerns that it has fallen dangerously far behind its competitors.

"I don't think that there is a drastic change needed," Heins told analysts in a conference call Monday morning.

"We are evolving our strategies, our tactics and processes... I want us to have a bit more of an ear toward the consumer market and understand trends — and not just do what the Street is telling (us)."

However, the company's stock dropped 7.1 per cent, or $1.23, to $16.01 in early trading on the Toronto Stock Exchange and one major shareholder expressed disappointment with the moves.

"The market is voting with its feet," said Vic Alboini, president of Jaguar Financial Corp. in Toronto, which has been pushing for a change in the board structure for several months.

"The market is saying 'It's more of the same,'" said Alboini, one of a group of like-minded shareholders who own more than 10 per cent of RIM's stock.

The change does not go far enough to eliminate the need for a strategic review of its operations, which would include a possible sale of the company or some of its divisions, said Alboini.

"As a new CEO, and hopefully a revitalized board in the future, you cannot close the door on anything. Overall the news is negative, unfortunately, because they're keeping the two co-CEOs on the board," he said.

"The last thing you want to do is surround a new CEO from whom you want fresh thinking, independent initiatives ... with the history of RIM captured in the two co-founders sitting at the boardroom table."

Alboini, who has been among RIM's most vocal and influential critics and months earlier had demanded Balsillie and Lazaridis step down, called the new CEO and board members a "transitional team," saying they will have only months to bring about needed results.

RIM (TSX:RIM) marched out the new CEO after announcing late Sunday that Heins would replace co-CEOs Balsillie and Lazaridis. The move is an attempt to pull the troubled company out of a years-long slump and calm investor calls for a major shakeup in the executive ranks.

"This is not a seismic change," Heins said, in response to a question posed on the call.

Earlier in prepared remarks he said the company is still completing the "major transformation" that saw it grow from a small Canadian technology company into a key player.

"Like all companies that scale and grow globally, you hit a few bumps in the road here and there, but it is key that we learn from those mistakes."

"Without question we are stronger today because of what we have been going through."

Once one of Canada's most valuable companies, RIM has seen its fortunes plunge over the last few years as it lost market share to competitors such as Apple's iPhone and Google's Android platform.

RIM's problems were made worse by disappointing sales of its PlayBook tablet and a global four-day service outage for its BlackBerry service.

A key task facing the German-born Heins will be to assuage a host of less-than optimistic shareholders disgruntled by RIM's slipping performance and several glitches and setbacks. A number have demanded changes at the top for months, blaming Balsillie and Lazaridis for several years of deteriorating performance.

RIM's stock was once so highly priced as to briefly elevate it to Canada's most valuable company, worth more than $70 billion. Its market capitalization stands now around $9 billion.

While Balsillie and Lazaridis have left day-to-day operations, they both still remain on RIM's board and will have influence through their large ownership stakes.

Heins said that one of the areas where RIM will make noticeable changes is in marketing to consumers, particularly in the United States.

"We need to be more marketing driven, we need to be more consumer oriented," he said.

"This is where a lot of our growth is coming from."

RIM demonstrated the kind of high-profile marketing it intends to chase with a multi-million dollar launch of its "Be Bold" campaign on ABC's New Years Rockin' Eve broadcast several weeks ago.

One analyst said it will require more than change in RIM's top executive ranks to alter the course of the company.

"While we think this is a small step in the right direction, we are surprised RIM has decided to go with an operations minded insider, especially since we consider the challenges tied more to strategy," wrote UBS analyst Phillip Huang in a note.

"We don't believe these announcements will produce much change in the short-medium term, and much will depend on the success of BlackBerry 10."

Canaccord Genuity analyst Michael Walkley said he maintains his "Hold" rating on the stock, particularly because lower-cost Android products are pressuring its international sales

"We believe sales and earnings will decline," he wrote.

"While the change in management might reinvigorate the employee base, improve execution, or even increase interest from potential acquirers, we maintain our belief the new BB 10 OS will not stem ongoing market share losses to Android and iOS."

Also Monday, Ottawa-based Wi-LAN Inc. (TSX:WIN) said it launched a patent suit against Research In Motion in a U.S. district court in Florida claiming the company is infringing on two patents it owns.

RIM introduced the BlackBerry in 1999 and it quickly elevated the company to the upper echelons of the smartphone market.

But in early 2011, RIM's PlayBook — its answer to Apple's hugely successful iPad — left critics largely unimpressed. From then on, the news for RIM was mostly bad.

The company then announced it would take a US$485-million pre-tax charge on the cost of discounting the price of its PlayBook tablet and $50 million in lost revenues from an October service outage that affected millions of BlackBerry email and text users. It was forced to cut 2,000 jobs to keep costs in line.

In December, RIM reported third-quarter net profits of US$265 million, well below the $911 million for the same period a year before.

The Waterloo, Ont., company saw its stock market value fall from about $50 billion at the beginning of 2011 to about $7.6 billion by year's end. Shares hit a low of $12.80 in 2011. They had hit a high of almost $140 in 2008.