RIM's sale makes a breakup highly likely as sales are dead in the water

Since 2010, we've been writing about the slowly unfolding train wreck that is BlackBerry, Ltd. (TSE:BB), aka. the phonemaker formally known as "RIM".

I. Ground, Sweet Escape Lie in Sight for the RIMdenberg

The roots of the RIMdenberg disaster (or BlackBerry burnout?) lay in a pair of incompetent managers who were skilled at delivering communications clients, but were unable to deliver when the smartphone was called upon to do more.

In many ways, the BlackBerry story resembles that of Palm -- a pioneering firm that experienced wild success only to crash and burn hard as the market it fostered matured.
The RIMdenburg made its final descent after holding on for so long.
[Image Source: Jason Mick/DailyTech LLC]

BlackBerry smartphones launched in 2000 with the BlackBerry 957.  At the time, BlackBerry was the primary peddler of push email -- a service that delivered messages to customers far faster than the polling email (POP) clients that dominated rival devices at the time.

RIM saw strong success with its Pearl smartphones, which launched to the consumer market in 2006 and the Curve family that launched in 2007.  Both families featured basic cameras and media capabilities -- pretty much all that you could ask for in a smartphone at the time.

II. Palm Travelled This Road as Well

When Apple, Inc. (AAPL) launched the iPhone in 2007, it was just a curiosity.  Nokia Oyj.'s (HEX:NOK1V) Symbian was the top platform in smartphone sales volume at the time, but BlackBerries were widely regarded as the smartphone of choice for business and creative leaders.

Palm meanwhile was seeing similar success, albeit never scoring as lucrative business deals as RIM's massive contracts.  Some of Palm's biggest earnings came not from its own devices, but from inventing and licensing technologies that defined the products of others:
  • Graffiti handwriting recognition software (licensed by Apple for use on the Newton tablet/PDA)

    Apple Newton: The Simpsons
    Palm software defined Apple's Newton. [Image Source: 20th Century Fox]
  • PalmPilot Desktop/Palm Desktop synchronization software for Hewlett-Packard Comp. (HPQ) and other pocket-PC makers' PDAs.
In 2000, despite going through a mess of owners, Palm's initial public offering saw frenzied buying that valued it at $54B USD.  But the 2000s were cruel to Palm, which declined in influence even as BlackBerry's market cap waxed.

III. webOS -- Palm's Rendition of BB10

To be fair, Palm appeared to recognize its fate far sooner than BlackBerry.  In 2009 it went through a last ditch push to reinvent itself in the modern smartphone market, releasing webOS.  At the time Palm was viewed as a serious competitor to Apple and the new kid on the block -- Google Inc.'s (GOOG) Android.

Palm's webOS shown flashes up brilliance, but Palm and RIM has a fatal flaw in common -- they both suffered from a sluggish pace of product development.  Palm's product wasn't bad -- but the Palm 2 and Pixi were more minor revisions than a necessary upgrade.

The BB Storm brings back not-so-fond memories for me. [Image Source: BB]

RIM made a few half-hearted attempts at a full-touch device, but the results were appallingly bad (trust me I owned one -- or shall I say three, given that two were warrantied out due to hardware failures before my third Storm decided to kick the bucket leading me to buy an HTC Corp. (TPE:2498) Evo 4G instead).

HP Kills Palm
A fire sale to HP failed to save Palm. [Image Source: GigaOm]

Palm's John Rubenstein failed to develop a clear vision for the company, which plodded close to bankruptcy until it was bailed out in a $1.2B USD fire sale to HP in 2010.  For a brief instant it looked like the experiment might succeed -- in Feb. 2011 HP prodded its new unit to pick up the product pace and two smartphones, plus a tablet were announced.  But amid weak sales, HP lost its confidence in its fixer-upper and simply yanked it off the market

IV. RIM "Hits the Brakes"

Meanwhile, RIM's momentum in the smartphone market was gradually slowing.  After hitting $83B USD in market capitalization in June 2008, RIM shares began to retreat, as investors perhaps sensed the company was stalling as an innovative force.  Worse still, RIM's co-CEOs seemed somewhat oblivious to this development. In 2009 Mike Lazardis told a Fortune reporter in an interview, "Sometimes we have to put the brakes on.  We've shown that we can handle annual 100% growth. I'm not sure we could handle more than that."

Indeed sales continued to climb through 2010, even if share prices didn't follow in suit.  But by 2011, the foot began to drop on the brakes and the RIMdenberg teetered from upon its lofty heights.  RIM had promised something big -- a brand new OS dubbed "BlackBerry 10" by holiday 2011.  That date slipped.  A few months later, co-CEOs Mike Lazaridis and Jim Balsillie were shown the door, but that did little to halt RIM's burning descent.

BlackBerries in the trash
Droves of clients are dumping BlackBerries. [Image Source: LihPao]

RIM's new CEO, Thorsten Heins wasn't much better than his predecessors at pushing out BB10.  It ultimately took him another five more quarters before BB10 finally rolled out in the U.S. March 2013.

V. RIM -- a Final Girl in the Face of the BlackBerry Sales Bloodbath

When BB10 finally arrived, it felt eerily familiar to me.  It was like listening to the plaintive webOS swan song all over again.  Like webOS, BB10 was much overdo and had elements of brilliance, but lacked the firepower needed to change the minds of consumers who had long ago relegated BlackBerry to the scrap heap.

Still, much like with Palm, RIM (now BlackBerry Ltd. (TSE:BB) seemed to linger on quietly in its final days.  Much like a horror movie where you spent hour seeing everyone die, but the final girl survive, you almost thought that RIM might get away.

In 2012 I tried to explain the reality of RIM's decline, writing:

With RIM I'm not by any means trying to "troll" the company, and I constantly point out that it is still profitable. That said sales are dropping (U.S. and overall global), the brass posted a gloomy 2012 outlook, and BB 10 is late.

I'm glad to see there's some good notes and to hear a bit more about why the Torch 2 is worthwhile.

But ultimately I'm reminded of the Palm situation -- one where some customers swear by the product and point to its merits, while the majority dismiss it.

To be fair, BB proved far more capable of convincing tops shareholders foolishly not sell than I had expected.  

RIM Sign
RIM held on for longer than many of us expected [Image Source: BGR]
In mid-2012 I wrote:

Regardless, if there's one thing that's clear it's that a sale of RIM is likely coming soon.  It seems unlikely that RIM will survive to see its ever-slipping operating system arrive.  

Investors will surely be eager to salvage what little they can from the company.  The company does have some decent assets -- namely its large intellectual property portfolio, its recognizable business brand, and its superb physical keyboard mastery.

Ultimate BB held on.  But after a confidence devastating $1B USD loss and abysmal sales in the last quarter investors finally successfully pressured BB to throw in the towel.  

I'll admit -- I was a bit shocked.  After seeing BB survive for so long, like that final girl, it was a real shock to see it sold at last.  It was both utterly surprising and utterly predictable all at the same time.

VI. Cautionary Tales for Those Who Follow

Fairfax Financial Holdings Ltd. (TSE:FFH) has received a tentative agreement to buy BB for $4.7B USD.  And that may be all she wrote for BlackBerry.  In an interview with The Financial Times Fairfax CEO Prem Watsa cheers, "Rest assured when we do this it won’t be done to split the company.  I mean one of the reasons I went on the board, and I said it publicly, was to keep the company in Canada and to make sure it survives and exists in Canada. It is one of Canada’s most successful companies. Companies do fall on hard times and they come back again and we expect this company to do the same."

Prem Watsa
Prem Watsa claims he won't break up BB, but then he went on to say that he might -- hmm.
[Image Source: The National Post]

It wouldn't be surprising see this billionaire angel investor and BB malinger about for a bit longer.  But the reality is after losing hundreds of millions on BB Mr. Watsa may be looking to cash out via sales of BB's rich intellectual property portfolio and enterprise business units.  The article closes with the comment:

He said all possibilities are open including getting out of the hardware business and changing the CEO. He said he’s a fan of CEO Thorsten Heins and thinks he’s done a very good job, but said he was handed a tough job when he took over in early 2012. “We have to in this due diligence look at all of these things,” Watsa said.

Not if, but when the coffin is nailed shut on BlackBerry, it should be marked as a cautionary tale of how even the mightiest can fall if they let stop innovating.  Together RIM and BlackBerry were once worth $137B USD at their respective peak valuations.  Now Palm is gone and BB is worth $4B USD and fading fast.

Companies like Apple or Microsoft Corp. (MSFT) may be sitting on seeming invincible cash piles -- and to be fair their hordes are much larger than anything BlackBerry or Palm ever clutched -- but Palm and BB/RIM illustrate that in time even they could fall, should they fail to keep up with market trends.

Source: Fast Company

"So, I think the same thing of the music industry. They can't say that they're losing money, you know what I'm saying. They just probably don't have the same surplus that they had." -- Wu-Tang Clan founder RZA

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