A management shakeup at Research in Motion this weekend has seen Thorsten Heins, a company insider, take over as chief executive officer, succeeding Mike Lazaridis and Jim Balsillie.
The departure of the co-CEOs was designed to quell investor impatience over the BlackBerry maker’s recent lackluster performance. But the appointment of Siemens veteran and former COO Heins seemed to confound more than reassure Monday, sending Research in Motion’s shares down sharply.
“As much as people have called for a change at the top, I actually think [the company’s] problems aren’t necessarily leadership related,” said James Faucette, senior research analyst at Pacific Crest Securities. “I think the problems are structural and market-based.”
New CEO Heins outlined his vision for the company’s future during a conference call Monday morning, saying Research in Motion is evolving its tactics but that a “drastic change” to the business is unnecessary.
Analysts like Faucette don’t agree. While there’s no “silver bullet” to fix Research in Motion’s problems, dramatic changes are needed.
“They need to come out with better products, faster and on time,” he said.
Heins has indicated that speeding up the development process is on his to-do list, but the company has fallen so far behind in so many key areas that a growing chorus suggests Research in Motion might be better off with that drastic change Heins eschewed.
“The rumors until last night [were] that the position would go to a financial person,” Carolina Milanesi, vice president of research in Consumer Technologies & Markets at Gartner, said in an e-mail message, adding that such a choice would have signaled to investors that a strategy involving a sale was, at the very least, under consideration.
With Heins ensconcedin the top spot and former CEOs Lazardis and Balsillie still on the company’s board, such a prospect appears unlikely for now.
Edward Snyder, managing director at Charter Equity Research, said even with a new CEO, Research in Motion still faces significant hurdles.
“The phones are dated and don’t have a lot of the features and benefits” that customers now expect thanks to the growing ubiquity of iPhones and Android devices, he said, and the company has been largely unsuccessful in its efforts to attract app developers.
Research in Motion’s plan to create its own operating system was a time-consuming, expensive endeavor that hasn’t borne fruit and, in Faucette’s view, never will.
“Continuing to kick that horse is going to lead nowhere,” he said.
Heins has expressed a commitment to BlackBerry’s forthcoming operating system, which has been plagued by delays and is set to debut late this year. But even analysts who are bullish on the company’s long-term prospects say the long wait will give the company some short-term heartburn.
"[U]ntil BlackBerry 10 handsets launch we believe RIM will continue to be challenged and could even see a loss,” Peter Misek, equity analyst at Jefferies, warned in a recent research note.
Misek has a brighter view of BlackBerry 10’s potential than Synder, saying in his note he sees “tremendous value” in RIM's network that will be fully realized once the new operating system is in use.
“We see a licensing deal and other potential monetization strategies as a path to unlocking that value,” he wrote.
Conversely, RIM could throw in the towel on its operating system and run its next-generation devices on Android.
“They’ve got to stop competing with Apple and Google,” said Ted Schadler, principal analyst at Forrester Research. “There’s no way they're going to win.”
Ditching the operating system, which RIM executives have been hyping up for months, would be a drastic move as well as a potentially risky one. The upside is it would free up resources and let the company focus on what analysts say is its crown jewel: a secure, self-contained worldwide network for data delivery.
“The network’s extremely valuable,” Schadler said. “If you're an organization that wants a secure end-to-end delivery out to the phone, what they have that no one else has is a secure data network globally.”
As Google and Apple have dismantled RIM’s dominance, some suggest that it would be better to cut its losses and funnel its resources into its enterprise business, a market that values the security and delivery capabilities of the RIM network to a greater degree than the average Angry Birds-playing consumer.
“I think they should focus on reducing expenses and try to improve the cash flow... and try to reposition the company,” Faucette said. “They should look at going back to being direct to enterprise,” he added. This would mean a substantially smaller RIM, he acknowledged, but it would also give the company a way to stand out among its competitors.
Either way, RIM’s new CEO has to decide which direction it plans to take soon. Investors punish bad decisions, but they look even less favorably on indecision.
“RIM needs to decide if BlackBerry 10 is what they want to build their future on and if so drive this aggressively,” Milanesi said. “If not and they decide that Android is the future they need to focus on enabling Android in the enterprise where vendors are still struggling today.”
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