Research In Motion is a company in transition. It is going from a global powerhouse smartphone maker to a struggling equipment manufacturer with too much company bloat, an aging operating system and declining user base. In a letter to investors today, CEO Thorsten Heins acknowledged that RIM had contacted bankers from J.P. Morgan and RBC Capital Markets to assist RIM in reviewing its financial stability and goals. In essence, Heins said that RIM, or at least parts of it, may be up for sale.
Heins took over RIM in a bad spot but, unlike chief executives from Yahoo and Hewlett-Packard, he's making the best of a bad situation. He is candid and funny and, most importantly, very honest. Heins presents a “go team” type of spirit that is encouraging for RIM after all the bad news the company has seen since the beginning of 2011. Sometimes a large company’s CEO just needs to be its biggest cheerleader.
That cheerleading spirit and honesty was on display in Heins’s letter to investors ahead of its first quarter earnings to come out next week. He touted the attendance at the company’s BlackBerry Jam earlier this month, the excitement around BlackBerry 10, the developer ecosystem (BlackBerry App World is now up to 80,000 apps) and the RIM’s global user base (78 million). We know RIM is not doing well, but it still has $2.1 billion in the bank and a little runway in which to smooth things out.
At the end of Heins’s letter, he acknowledged RIM’s talks with banks about its financial position.
“To further enhance our commitment to successfully completing our transformation, after the release of our year-end financial results, we engaged J.P. Morgan Securities LLC and RBC Capital Markets to assist the Company and our Board of Directors in reviewing RIM’s business and financial performance. These advisors have been tasked to help us with the strategic review we referenced on our year-end financial results conference call and to evaluate the relative merits and feasibility of various financial strategies, including opportunities to leverage the BlackBerry platform through partnerships, licensing opportunities and strategic business model alternatives,” Heins said.
This may come as no surprise to industry watchers, but BlackBerry is looking to do whatever it takes to remain solvent. But, what exactly are, “partnerships, licensing opportunities and strategic business model alternatives?”
Companies do not go seeking the help of J.P Morgan on a whim. Essentially, what Heins was saying is that RIM approached the banks to test the waters for a sale. If not a sale, per se, then the ability to license the actually manufacturing of BlackBerry smartphones to a different equipment manufacturer or to partner with companies to make equipment for them. For instance (and purely theoretical), a Facebook Phone built by BlackBerry.
Strategic business model alternatives could mean just about anything. That includes getting out of the manufacturing business entirely and becoming a pure software platform provider. RIM has assets to pull that off in the areas of communications (through BlackBerry Messenger), security (BlackBerry Enterprise Server) and application development. If RIM were to choose that road, it would be a painful transition for the company and thousands of employees.
In the letter, Heins said that RIM would be becoming a leaner machine in the near future. That means layoffs and probably a lot of them. The company has already lost a significant portion of its top executives but many of the average jobs at the company will likely go in the not-so-distant future.
“We will also continue to review RIM's organizational structure and clearly define accountabilities for all key businesses and business processes with a goal of eliminating fragmentation, duplication and inefficiencies. While there will be significant spending reductions and headcount reductions in some areas throughout the remainder of the fiscal year, we will continue to spend and hire in key areas such as those associated with the launch of BlackBerry 10, and those tied to the growth of our application developer community,” Heins said.
Essentially, RIM is cutting itself back to core competencies. BlackBerry 10, which will have to be the company’s saving grace (or it will have to sell for sure), will be getting the lion’s share of resources in the near term. International sales and BlackBerry Messenger are two of RIM’s remaining strengths and will likely get a boost too. Marketing will see a bump as well, especially as BlackBerry 10 comes to off the assembly line. Anything else outside of those areas will be ripe to be sold, lose employees or outright shut down.
All the hopes for RIM rest with BlackBerry 10. Until that is released, RIM will be hurting and shedding money. Heins’s job until that point is to keep the company afloat and explore all options, including a sale of all or part of the business.