Blogs & Comment

RIM plays to its strengths—and acknowledges weakness

Research in Motion introduces a new service, and investors like it.

Jim Balsillie (right,) joint CEO of Research in Motion, and President and joint CEO Mike Lazaridis, wait for the start of the company’s Annual Meeting of Shareholders in Waterloo,  Ontario, on Tuesday, July 13, 2010 (Photo: Chris Young/CP)

Research in Motion’s activities on the enterprise side of its business are sometimes overlooked by investors and the media, who tend to fixate on the fiercely competitive consumer market. But the company made an intriguing announcement on Nov. 29 and introduced a new service called BlackBerry Mobile Fusion. Set to launch early next year, the service will allow corporate IT departments to manage a fleet of smartphones and tablets from a single web console—including rival iPhone and Android devices.

The company said back in the spring it would do something like this, though the announcement was largely overshadowed by a profit warning issued a few days prior. Mobile Fusion is a smart move in a number of ways. It allows RIM to build on its expertise in management and security, and strengthens ties with corporate customers. The service will extend to rival devices some of the features that have made the BlackBerry the number one choice for businesses. For example, IT managers will now be able to remotely lock and wipe data from lost or stolen corporate iPhones and Android phones.

But the announcement is also recognition on RIM’s part that its dominance in the corporate space is no longer assured. Internally, according to former employees, the company has been concerned about the enterprise market and wondering if it had been doing enough to meet customer needs. As rival devices have gained market share, IT departments have been loosening up and allowing employees to use non-BlackBerry devices, eroding RIM’s once unshakable presence. The same is true of tablets; RIM didn’t even introduce the PlayBook until more than a year after the iPad debuted. By offering Mobile Fusion, RIM can potentially offset any slowdown in device sales by boosting the revenue it gets through services.

That portion of the business accounted for 24% of the company’s revenue in the last quarter, up from just 13% in fiscal 2009. Service revenue is one of the reasons why Scotia Capital analyst Gus Papageorgiou believes RIM is “absurdly oversold.” The news of Mobile Fusion is likely part of the reason why RIM shares got a bump after the announcement.

Nevertheless, handset sales remain the bulk of the company’s business. RIM has no desire to merely become a manager of devices, and it has a lot of work to do if it is going to avoid that fate. The mood toward the company is overwhelmingly pessimistic. Pierre Ferragu, an analyst with Bernstein Research, wrote in a note on Nov. 29 that the company’s shares are “too cheap to be true,” and upgraded his rating from underperform to market perform.

He still doesn’t recommend buying shares, however, at least not until there is a change in strategy or management attitude, or a credible takeover offer. “We also continue to see downside risks as the recent negative sales trend could accelerate and the accumulation of product failures could trigger major write-offs,” he wrote.