Market Overview

Despite Top Management Shakeup, Research in Motion Continues to Plunge


On Monday, Research in Motion (NASDAQ: RIMM) co-chairmen and co-chief executives, Mike Lazaridis and Jim Balsillie, announced that they would step down from their positions leading the beleaguered technology company. Mr. Lazaridis will become a vice chairman and head the board's new "innovation committee" while Mr. Balsillie will remain a director at Research in Motion. The story of the two men at Research in Motion is one of stunning success followed by a string of disappointments.

The smartphone maker was founded by Mr. Lazaridis with a childhood friend in 1985. Mr. Balsillie joined the company in 1992 and invested $250,000 into RIM, which was at the time struggling. Over the years, the Waterloo, Ontario based firm would become a technology heavyweight with its Blackberry smartphone device, which revolutionized an entire industry. In June of 2008, RIMM shares hit a high of $144 and the company was not only a Wall Street darling, but Canada's most valuable by market capitalization. In very short order, however, RIMM's fortunes have taken a drastic turn for the worse as competitors such as Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) have decimated Research in Motion's market position.

In fact, according to data from Canalys, a UK based market research firm, RIM has gone from commanding around half of the U.S. smartphone market two years ago to just 9% as of the third quarter of 2011. Much of the company's declining market share has been the result of the emergence of the iPhone and devices which run on Google's Android operating system. In addition to the company's smartphone woes, RIM was slow to enter the tablet computing market and has subsequently experienced problems with its lackluster PlayBook device, which is now being sold at prices below the company's manufacturing cost.

Once again, most of RIM's struggles in the tablet arena can be traced back to intense competition from Apple (AAPL) and Google (GOOG). Although RIM has been getting trounced in developed markets, the company has been able to continue to post strong revenue and profit growth as a result of its expanding footprint in overseas markets. In newer markets, the company has an edge because its BlackBerry device runs more efficiently on less developed wireless networks, but this advantage is unlikely to remain as networks continue to be upgraded. As a result, analysts are projecting that the company's earnings per share will fall from $6.34 in 2011 to $4.11 in 2012 to $2.94 in 2013.

The result of the bleak outlook for the once high-flying tech company has been a crash in its stock price. Over the last 52-weeks, the shares are down more than 75% and trade at just $15.08 compared to the $144 high set in 2008. Against this backdrop, something had to be done. The departure of Lazaridis and Balsillie as co-chairmen and co-CEOs, however, has been met by more selling from investors, although few would argue that it wasn't the right move.

Yesterday, in the wake of the announcement, RIMM shares lost roughly 8.47%. On Tuesday, the sell-off is continuing with the stock down another 3.60% to $15.00. While analysts have largely been supportive of the move - Deutsche Bank (NYSE: DB) upgraded the stock from "Sell" to "Hold" yesterday and raised its price target from $10 to $18 - no one believes that simply shuffling the company's leadership will fix the deep problems at Research in Motion.

The new CEO, Thorsten Heins, who was formerly one of the company's two chief operating officers and worked previously at Siemens, is hoping that RIM's new line of phones and new operating system known as BlackBerry 10, can turn the company around. These devices, however, are not expected to hit the market until late 2012 due to a series of delays.

In the absence of the BlackBerry 10, there is very little that RIM can do to immediately reverse its fortunes - a fact that Heins appeared to acknowledge this weekend. He said, “Would we have loved BlackBerry 10 to be out earlier? Yes, sure. But we had to manage a very, very challenging situation where we need to continue our growth based on the existing BlackBerry platform and we had to transition the company." Unfortunately, this transition, thus far, is very far from being complete - or even remotely successful.

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