Is RIM a dead man walking?

By evoke
December 20, 2010

Research In Motion is an operating contradiction. On the one hand, its recent earnings per share beat expectations, its third quarter sales were 50% higher than last year, year-over-year sales are up by 40% and it has 55 million subscribers worldwide.

One the other hand, it continues to lose share to iPhone, which has now been approved for use by one of RIM’s core customers: many of New York’s biggest financial firms. It is refusing to divulge new subscriber numbers in the future, its shares price is down 12% on the year and analyst expectations are modest for Playbook, the iPad competitor that is hoped to drive much of RIM’s future growth.

To further the contradictions, most Canadian analysts are calling RIM a buy, while their American counterparts are recommending their customers sell. We side with the Americans, believing the surface looks great for RIM while its foundation inexorably crumbles beneath its feet. It is its disintegrating foundation that makes RIM a dead man walking.

Why? Because the universe has changed, making cell phone hardware irrelevant, and RIM hasn’t. It makes a competent phone with excellent security and an average at best ability allow its user to function online. This is no longer enough in a world that is increasingly being defined by apps and content, with devices just the throw-away, interchangeable hardware that makes them accessible. RIM is woefully behind in nurturing an apps community and developing a content library because it still defines itself as a handset manufacturer.

IBM faced the same dilemma in the early 90’s when it realized there was no future in computer hardware, which was becoming a commodity. Over the next decade under Lou Gerstner, it totally redefined and transformed itself from a hardware company to a developer of large scale software solutions. Note that IBM already had most of the skills it needed to transform from one definition of itself to another. IBM continues to thrive and grow as a leader in its field to this day.

RIM needs to undergo the same soul-searching IBM did 20 years ago. It needs to redefine itself for what is, from its perspective, a new world defined by others. Like IBM, it has all of the pieces and skills to be a bigger and better version of what it is today, it just needs to find its unique answer to the question “who are you?” for the future, not the past. Once it has this new definition, everyone at RIM will be able to use it as a filter that defines everything they need to do to carve out a place in the world that, like IBM and unlike RIM’s current model, will enable it to survive and thrive for the next 20 years.

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