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RIM stock sinks ahead of next uncertain chapter

Don't write off Research In Motion just yet.

It may be fashionable to liken RIM's decision to hire two banking firms, JPMorgan Securities LLC and RBC Capital Markets, to putting a for sale sign on the lawn of its Waterloo campus. The bankers, after all, are being brought on-board to help the embattled smartphone vendor explore strategic options — which could potentially range from simply helping with the already-in-progress restructuring to brokering licensing deals and partnerships all the way to, admittedly, a potential sale of some or all of the company's assets.

It makes for great headlines: The beginning of the end, the end of an era in Canadian business, an abject lesson in the price of unfettered arrogance. But CEO Thorsten Heins isn't seeking headlines. He is, however, trying to secure RIM's survival amid a veritable witches brew of converging factors that would challenge even the best prepared organization.

Righting an historic wrong

The reason RIM is reaching for guidance from the financial services industry is simple: Heins's predecessors, Jim Balsillie and Mike Lazaridis, refused any external input, spurned industry observers who urged it to respond more quickly to a fast-changing market, assumed the BlackBerry technology that just over a decade earlier had leapfrogged the company from a mildly successful regional wireless device player to a global, market-defining superpower would be enough to keep it at the top indefinitely.

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But the arrival of next-generation revolutionary products like Apple's iPhone and Google's Android proved just how tenuous any tech leader's reign can be, and now RIM finds itself flogging increasingly stale BlackBerry 7-based smartphones — and an almost-forgotten PlayBook tablet — while it waits, painfully, for its own next-generation products based on the BlackBerry 10 operating system to be ready.

Crossing the Valley of Death

It all adds up to an ugly transitional period for the company, and an ugly run of results as RIM wraps up its financial quarter.

As the company sits on a growing inventory backlog reported to be worth close to $1 billion, it's becoming increasingly clear that the gap between BlackBerry 7 and 10 is just too wide. The new products won't arrive soon enough to staunch months of worsening, value-destroying in-market performance. Guidance from the company points to its first operational loss this quarter — the $125 million shortfall in the previous quarter was largely attributed to special charges.

In short, the company needs help, and had RIM failed to make the call to the banks, investors would have pilloried Heins for failing to do everything possible to preserve shareholder value. Damned if he does, damned if he doesn't.

No surprises here

However investors choose to assess this week's batch of news, the move to bring in the bankers hardly marks a change in RIM's strategy. Way back in March, after RIM's last quarterly results were announced, Heins spoke about the need to explore strategic opportunities as speculation mounted that the company would soon bring in bankers to drive the process. Everyone knew this was coming.

The good news in all of this is RIM is now, more than ever, on track to becoming a responsive, agile, and focused organization. Painful as they are, expected staff reductions that could bring head count down by a reported 6,000, will reduce the organization's burn rate and align it more cleanly with its now-single-digit market share. The radical restructuring, which has already torn through much of the senior ranks and is spreading to every corner of the company, will eliminate the layers of disconnected bureaucracy that observers contended were at the root of the company's initial failure to change. Its global subscriber base of 78 million continues to grow, albeit slowly, and it's sitting on $2.1 billion U.S. in cash.

The new BlackBerry 10-based devices, when they finally bow, should allow RIM to, if not take on industry leaders Google and Apple head-on, at least carve out a smaller niche focused on the enterprise buyers who have long coveted security and manageability above all else. Because the new operating system is based on technology acquired in the QNX Systems buyout in 2010, it could also allow RIM to move beyond the smartphone/tablet paradigm that has so vexed the company over the last two years. QNX code is already a fixture in industry-vertical solutions like industrial control and automotive, so it's not much of a stretch to see RIM taking it in other directions, as well — something Heins has repeatedly hinted at in recent months.

To get there, the company has to survive the falloff in demand for its current products. Calling in the banks simply means it's asking for help when it needs it most. All of which means the last card has yet to be played, and those waiting for RIM's next chapter will have plenty to watch for as the company moves through the most crucial few months in its storied history.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca