Scrambling to save a sinking ship: RIM’s last hopes for staying afloat

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Times are tough for Canada’s Research in Motion. Last month, the company announced it lost $125 million in its most recent fiscal quarter and that global shipments of its BlackBerry smartphones were down 21 percent from the previous quarter to 11.1 million units. While there are firms that would kill to ship 11 million phones in a quarter — and, the figure isn’t far off the 12 million smartphones Nokia sold last quarter — it’s a far cry from the likes of Apple and Samsung, which are expected to post quarterly sales figures in range of 20 million smartphones each.

The financial tumult has been accompanied by top-level shakeups. Co-CEOs Jim Balsillie and (founder) Mike Lazaridis both stepped down, with long-time exec Thorsten Heins taking the President and CEO roles. Balsillie left the company’s board just a couple weeks ago, at the same time RIM announced its COO and long-time CTO were leaving the company. Morale at the company has been on a downturn for over a year as the company chugs towards its next operating system release, and the turmoil keeps bringing up analogies to rats leaving a sinking ship.

It’s clear RIM has been leapfrogged on the consumer smartphone revolution, and its efforts to date in the tablet market have failed. But does that mean RIM is circling the drain? Or does the company have some assets up its sleeves that could enable the company to be a solid — though perhaps niche — player for years to come?

Banking on it

JPMorgan Manhattan HQ

RIM’s new CEO Thorston Heins seems to be trying to buy time to turn the company around. According to Bloomberg, RIM is close to choosing a financial advisor to help the company assess business options — Bank of America appears to be in the running, but JPMorgan seems to be the front-runner.

RIM hasn’t said why it’s looking to hire a bank, but companies like RIM typically hire major investment banks as advisors when they’re considering major financial transactions. An example would be the sale of the company, although there are probably few potential suitors for all of RIM. More likely, RIM is considering sale of some of its assets or offering stake to investors, most likely in the form of a cash-rich private equity firm.

RIM isn’t exactly strapped for cash — the company reported about $2.1 billion in assets last quarter, along with an actual increase in cash flow from operations. But it takes a lot of money to change the course of a company like RIM, particularly if it wants to hold on to as many of its existing customers (particularly organizations, governments, and enterprise) as it can.

What could RIM be looking to sell?

Patents

RIM mobile fuel cell patent figure

RIM has been in the mobile technology business a long time, and holds a number of patents that other mobile technology companies would like to call their own. However, while firms like Nokia, Motorola, Samsung, Qualcomm, and even Apple have amassed enormous mobile patent portfolios, some analysts indicate the value of RIM’s patents is relatively slight in comparison. (In fact, RIM is most famous for being on the losing end of patent battles, most famously in the mid-2000s with NTP but more recently with Kodak.) Last year Jeffries analyst Peter Misek indicated the total value of RIM’s patent portfolio might only be about $2.5 billion, with patents essential to burgeoning LTE technology accounting for just $400 million. RIM might be looking to sell off those patents — since it’s clearly never going to be in the drivers’ seat for LTE technology.

RIM might be considering other patent sales — after all, the company was just awarded a patent for putting a fuel cell into a phone, enabling devices to charge themselves. The technology is likely years from practical application — and, by then, even RIM might not be making phones with keyboards convenient for venting — but may represent a path to a battery-free future in mobile devices.

RIM might also be looking for a financial advisor because it wants to make a purchase. Mobile technology patents are a hot commodity right now. If RIM could bolster its patent portfolio with a particularly savvy deal, it might beef up its business for years to come.

BlackBerry Network

BlackBerry Enterprise Services network diagram

RIM has one asset that is absolutely unique amongst mobile device makers: its own secure network. While BlackBerry devices rely on regional mobile operators for mobile services, the bulk of BlackBerry services flow between mobile providers on RIM’s own network, rather than relying on private peering arrangements or the public Internet. RIM’s network operations are primarily located in North America and the United Kingdom, although the company has been reportedly been obliged to set up operations centers in countries like Saudi Arabia and India that want the ability to quickly intercept (and, in some cases, attempt to decrypt) BlackBerry communications without getting international legal authorities involved.

Former CEO Jim Balsillie reportedly left the company after initiating discussions to offer non-BlackBerry devices limited access to the BlackBerry network. Although the service hasn’t been glitch-free for RIM (a three-day service disruption last October seriously besmirched the company’s already-tarnished image), there are other ways RIM could leverage its network. Instead of doing deals with mobile operators to offload some of their low-end smartphone and messaging services (like social media updates and instant messaging) to RIM’s network, RIM could bring its services to other smartphone platforms — and tap back into its own network.

RIM has already been working on BlackBerry Messenger for Android: If the company could launch a secure messaging service for Android and iOS devices that relies on its own network, it could be a hit. Enterprises and government agencies are RIM’s core customers, and they’re already facing a deluge of users bringing their own iOS and Android devices into their organizations.

The idea would play to RIM’s strengths — something new CEO Heins says he intends to do. RIM’s network operations bring in about $1 billion in revenue a quarter, whereas RIM’s existing hardware business seems to be where the company is actually losing money. If RIM could find a way to make any smartphone volunteer to be a BlackBerry, it could quickly build on the successful part of its business without alienating current customers. RIM’s own BlackBerry hardware could still be the company’s premiere experience, but users could get a taste on other devices — and generate some revenue for RIM.

Could every smartphone be a BlackBerry?

Blackberry man

RIM is already taking steps to extend the BlackBerry ecosystem to other platforms. BlackBerry Mobile Fusion brings enterprise-level device management tools to iOS and Android devices. In short, organizations that are already using BlackBerry Enterprise Server can now manage Android and iOS smartphones using the same interface and tools they use to manage BlackBerry devices. It doesn’t just enable IT departments to control what apps and data can be used on a mobile device; they can also control the devices’ configuration, connectivity, and remote wipe the devices in the event they’re lost or stolen.

Of course, BlackBerry Mobile Fusion only applies to consumers who demand to use their Android or iOS devices in IT environments where BlackBerry is already in control. But RIM could conceivably build from that foundation to premiere consumer services as well. There’s no reason RIM couldn’t offer remote device management (and security services like remote wipes) for iOS and Android devices. And as companies like Apple and Google mine personal information on customers’ mobile devices to serve up ads, RIM could easily carve out a niche for itself amongst privacy- or security-conscious consumers. Imagine a suite of messaging, document, and media-sharing services that guarantees end-to-end security — and no ads.

The problem with this approach is that it undermine’s RIM’s hardware business. If any device can tap into essential BlackBerry services, there’s little incentive for users to consider RIM’s own forthcoming BB10 operating system or the phones that will run it.

Can RIM license its operating system?

Some reports suggest RIM may license its operating system to third-party vendors. The idea would seem to cede the low end of the BlackBerry device market to other markers (although RIM would of course collect a fee for every sale) while focusing its own efforts on the high end. In North America and Europe, it’s hard to see who might want to license the BlackBerry OS or the forthcoming BB10. After all, Android is available for free (at least, for the time being: Oracle is working to change that) and there’s no shortage of other free mobile operating systems to choose from, including webOS (which HP is slowly releasing as open source) and Tizen, an open source mobile platform born from Intel and Nokia’s aborted MeeGo and Samsung’s Bada.

The answer might be outside the North American and European markets. In developed economies, RIM’s primarily markets are corporations, governments, and enterprises. However, in many international markets and developing economies, BlackBerries are actually hits with consumers. By licensing its operating system to third parties in developing economies, RIM could increase its installed base without having to get into the notoriously low-margin low-end phone business.

Looking to Asia, Africa, and the Middle East

BlackBerry Curve 9220 Katrina Kaif

Consumer interest in BlackBerry devices in international markets might be RIM’s saving grace. RIM does not break out its sales by region, but reported last quarter that 68 percent of its handset sales were outside the United States, Canada, and Britain — in the previous quarter, that was 61 percent. The figures suggest that the bulk of RIM’s handset sales losses are in those three countries, while sales are steady (or even growing) in other markets.

RIM is particularly interested in increasing sales in markets like India, South Africa, Saudi Arabia, Indonesia, and Nigeria. Indonesia is the world’s fourth-largest country, by population, and industry estimates indicate RIM may account for half the country’s smartphone market. When RIM offered half-off BlackBerries in Jakarta last November, 90 people were injured in the resulting mob.

However, the BlackBerries that work in countries like Indonesia and India aren’t the same BlackBerries that’ll appeal to smartphone buyers in North America or most of Europe. Even a low-end BlackBerry is a substantial investment for consumers in many developing nations. According to recent figures from the International Labor Organization, the average pre-tax monthly wage in India is about US$295. Buying a BlackBerry (and service) can represent a significant chunk of a person’s annual income.

That means to make a phone to appeal to those markets, RIM has to cut a few corners. Take for example the BlackBerry Curve 9220, which RIM just rolled out in India this week with the help of Bollywood actress Katrina Kaif. It’s not 4G. It’s not 3G. It relies on 2G EDGE service for data. It sports a 2.44-inch display, a two megapixel camera (no autofocus) and 512 MB of built-in storage. It does have Wi-Fi and Bluetooth, but the point is clear: the Curve 9220 is not a phone that would even get a second glance in the North American market. Yet, in India, it represents a flashy, high-end phone.

If RIM licenses its operating system, it won’t expect manufacturers to expand the BlackBerry market in developed nations. It will hope third-party phone makers could make BlackBerry devices that target emerging markets — maybe even China.

[Top image credit: Shutterstock/jokerpro]

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