Crackberry.com caters to the members of a dwindling tribe in North America: hard-core BlackBerry users. The website’s comment sections are filled with proclamations of support for Research In Motion and rants against those who harp on the company’s weaknesses. One visitor recently posted Rudyard Kipling’s ode to stoicism and virtue, “If,” seemingly to tell the faithful to keep a stiff upper lip.
For RIM, it is no doubt encouraging to see such strong levels of support. But it will be increasingly difficult to maintain. CEO Thorsten Heins announced the company will very likely produce an operating loss in its first fiscal quarter. RIM also hired JPMorgan Securities and RBC Capital Markets to pursue strategic alternatives. The press release did not specifically cite a sale as an option, but Heins has said previously he would not rule one out. Such efforts amount to Plan B. The preferred course of action is to roll out a new line of smartphones, BlackBerry 10, later in the year.
This is a “suicidal strategy,” according to Bernstein Research analyst Pierre Ferragu. “The BlackBerry 10 launch will most likely turn into a disaster,” he wrote in a recent note. Ferragu started doubting RIM back in 2009, one of the few analysts to do so. In his view, Apple and Google have already won the smartphone platform wars. Together, Apple’s iOS and Google’s Android operating system dominated 75% of smartphone sales in the fourth quarter of 2011, and there’s room to grow. Ferragu’s firm recently polled smartphone users across the U.S., France and U.K. to find out which platform they would choose for their next smartphone purchase. Nearly 60% of BlackBerry users planned to jump to an iPhone or an Android device.
Dire numbers like that put exceptional pressure on RIM to blow away the competition with BlackBerry 10. While the early impressions of the demo models released to developers in early May have been positive, the smartphones do not offer anything enticing enough to convince existing users to stay with the platform, argues Ferragu, let alone entice others to switch. RIM’s share price has fallen 20% since Heins gave a sneak peek of the device on May 1.
Heins is wise to have a backup plan. But what are his options? All manner of buyers have been touted for RIM—Microsoft, Nokia, HTC, even Facebook. Potential acquirers are likely to hang back in order to see how BlackBerry 10 performs in the market, though. RIM is also more expensive than it appears. Colin Gillis, an analyst with BGC Partners, argues that while RIM is cheap now, it traded in the range of $40 last year. That means the board could be justified in holding out for offers well above the company’s current share price. A breakup and subsequent sale of the parts is also problematic. “These transactions can seem compelling on paper but are typically messy operationally,” he wrote. RIM could go another route and open its famed network to offer added security and data compression services to competitors for a fee. Such a move would create more revenue for the company’s software and services business, but eliminate one of the unique attributes of the BlackBerry. Yet another option is for RIM to reinvent itself as a niche handset provider. Ferragu suggests creating a no-frills image built on e-mail and messaging to take advantage of the BlackBerry’s keyboard. The first BlackBerry 10 model, however, is likely to feature a touch screen, a move that could alienate loyal users who prefer the keyboard.
At this point, there are no easy answers. Heins might want to give “If” a read.