by 
Thorsten Heins is either the proverbial ostrich with its head stuck in the sand, or he may be about to engineer the greatest turnaround in the history of the electronics industry. Right now, though, one has to ask the new CEO of {complink 4644|Research In Motion Ltd. (RIM)} exactly what numbers he was looking at when he recently concluded the company is not in a “death spiral.”
That's right. Heins thinks RIM is just going through some minor problems. He told a Canadian radio show “there's nothing wrong with the company as it exists right now,” according to news reports. He added: “I am not talking about the company as I, kind of, took it over six months ago. I'm talking about the company (in the) state it's in right now.”
He's not done. On July 3, Heins wrote an opinion piece in the Globe & Mail newspaper of Canada to advance his belief that the company is now well positioned to overcome its challenges. Here are excerpts from his article:
- We believe RIM is a company at the beginning of a transition that we expect will once again change the way people communicate. As we prepare to launch our new mobile platform, BlackBerry 10, in the first quarter of next year, we expect to empower people as never before. BlackBerry 10 will connect users not just to each other, but to the embedded systems that run constantly in the background of everyday life — from parking meters and car computers to credit card machines and ticket counters.
Those are big promises, I know; and some doubt whether RIM can pull it off. I am the first to admit that RIM has missed on important trends in the smart-phone industry — especially in the consumer domain, focusing on its core value system for successful products and services.
As some pundits write RIM's obituary, the company's global subscriber base continues to grow, to more than 78 million people in 175 countries. In many of those countries — some of the fastest growing markets in the world — RIM is the top smart-phone; and in some, RIM devices account for the top three spots. We have relationships with 650 carriers around the globe; RIM's reliability and security make it the first choice for countless government agencies and are part of the reason more than 90 per cent of Fortune 500 companies deploy BlackBerry in their enterprises.
RIM has no debt. The company also has more than $2-billion in cash on its balance sheet, and generated $710-million in operating cash flow in its first quarter. Simultaneously, RIM is undertaking a corporate overhaul that we expect will reduce annual operating expenses by more than $1-billion by the end of our fiscal year. Unfortunately, that requires us to become a much more focused and smaller organization.
I don't doubt Heins's sincerity, but I have heard this narrative before. The high-tech community is littered with the carcasses of companies that believed they would somehow engineer a remarkable turnaround, regain old glory, and prove skeptics wrong. RIM had its chance; so did Motorola and Nokia. They helped lead the industry to where it is now but seem to lack what it needs to reach even higher.
If Heins was trying to allay Canadians' fears about the country's future role in high-tech, he may need to reframe the message. RIM's problem is not a reflection on Canada; rather, this is about a company that tripped after dominating in its section for a while. RIM may survive, but it won't in the near future dominate its market segment. That's clear to everyone and should be obvious to even a praise-singing CEO.
I might have given RIM more of a chance had the BB10 not be delayed. All of the drama surrounding RIM's decline should have been handled without losing focus on the product.
Saying “there's nothing wrong with the company as it exists right now,” does seem to indicate delusion in this case. It would be better to admit there are things wrong but that they are being identified and addressed.
Ariella, It might have been even better to “show and tell” rather than to just “tell” without substantive evidence backing this up. The BlackBerry may be a top choice in some parts of the world but it's not a top choice today as a smartphone for anyone who has the alternative (iPhone or Samsung Galaxy SIII, for example) in their sights.
“BlackBerry 10 will connect users not just to each other, but to the embedded systems that run constantly in the background of everyday life — from parking meters and car computers to credit card machines and ticket counters”.
I am waiting to see BB 10 features – parking meters, In-vehicle systems and payment platforms. Well, i think with those, RIM could stand a better chance against its rivals and may be claw back its market share potion currently going to its rival hands in Europe and North America. In emerging market, RIM still doing OK at least.
@Wale, If RIM would only deliver the new operating system! It has promised and so far failed to deliver the OS while rivals are cornering the market. The company must introduce the new system right away to remain a viable product. At the moment, it's the rivals that are doing while RIM is talking.
Information about the new operating system is also constantly changing. They have pushed it out several times to the point where the company may be in danger of losing credibility. I hope they get it right when the operating system is finally unveiled because this may be the last chance for the company notwithstanding what the CEO believes.
@Ariella: well, exactly, I am wondering why they haven't adopted that strategy instead. In your opinion, is there something we are not in condition to catch?
I definitely think that there is a price penalty for being single sourced. In this competitive world we live in today, everyone tries to find ways to identify weaknesses of the buyer to charge a premium to make more money. This has become the standard practice unfortunately. If a supplier knows that you desparately need the part he provides and there is nowhere else you can get it, he will charge you a premium.
Besides the financial penalty, I also believe that there are other penalties that cost you in terms of time. When single sourced, your questions are responded to with long delays and your phone calls are not answered most of the time. When you are single sourced, you have no option but to retry over and over again and the supplier knows that.
Regarding the argument on volume vs. price, I thought the justification of high prices for less volume was the increased cost per unit. Is this not the case? Are we simply led to believe that this is the case? I just want to make sure that I interpreted the argument correctly.
People are no longer excited wih BB10 any more. They instead are busy with android Jelly Bean or anticipating the next upgrade iOS6.
Providing connectivity to embedded devices around using a standard device such as a mobile phone is a good idea. However, I am not sure whether this strategy will transform the way we communicate. How many such connectable embedded devices exist around us these days? Is it enough to justify buying a new Black Berry? I think it's still early days. We need to see more of machine to machine applications that are closely knitted into our everyday lives before users are able to feel the need to buy a mobile device supporting M2M applications. As a medium to long term strategy, the M2M connectivity feature may be a profitable one but I am under the impression that Black Berry currently needs a solution that will be effective in the (very) short term.
@Wale, quite right, BB10 features sounds great. But further delay till 2013 doesn't appear strategically sound. RIM's competitors are all coming out with new device to steadily keep up with the pace within this market. Will RIM continue to offer talks or action? Or is it fine to remain “doing Ok”
Well Thorsten Heins is probably right about RIM's current position in the technology market when he said, “we're in the middle of a transition”. But from clear perspective, this transitional stage can either work to your advantage or detrimental to your wellbeing if caution is not taken – when appropriating actions. Let's just hope he's right when he said, this company is in the middle of it and I'm positive we will emerge successfully from that transition.” Its probable delaying the launch of BB10 will work to the company's advantage and possibly propel it to a better position. It's a wait and see game.
How many such connectable embedded devices exist around us these days? Is it enough to justify buying a new Black Berry?
Research in motion taking lead in that area not bad, the company cant be on the backfoot of M2M, i think. Though, am yet to see much market improvement in invehicle thing and smart metering. Why?
The answer is not that simple or straighforward. Single-sourcing can be a strategic choice and the risks can be less of a challenge if carefully managed. As to the pricing connection, isn't it more likely that a supplier with which a company has a single-source agreement could actually offer better pricing (for instance, if the volume is large enough) to guarantee the continuity of the relationship?
RIM and a dozen of other companies would like a piece of this multi-connected world. What exactly is different about the company's operating system that makes it a compelling product?
“isn't it more likely that a supplier with which a company has a single-source agreement could actually offer better pricing (for instance, if the volume is large enough) to guarantee the continuity of the relationship? “
I agree that a large volume carries a lot of weight in terms of getting a good service. However, how large is “large enough” for the supplier? The supplier will always favour the “larger” volume customer and that's where the problem really is. The single source is single from the standpoint of the buyer not the supplier. Therefore, the supplier will always have alternative buyers to work with and potentially orders of “larger volumes”.
Also, as far as I am aware, one would have to go for single source agreement if the product has specialised or unique characteristics that do not have readily available alternatives. This already puts the buyer in a difficult position and the supplier is probably aware of that and can negotiate accordingly.
I think it all depends on how the supplier sees the the implications of single source agreement and how ethical the supplier is to some extent.
@Bolaji, am not an iPhone or Android user but still Nokia. I like RIM's OS – its end-to-end security capability, messenger and PIN-2- PIN request/accept. Pin request and acceptance would fit and work perfectly well in those embedded things, and IOT ( Internet of things).
Doubtless. You are right the BlackBerry operating system has some great history in its favor. What's keeping it from playing a bigger role is the fact it lost its footing and the competitors aren't sleeping. How RIM plays its game in the next six months will be crucial to the company's success. Right now, it is managing a downward trend, and not growth or new markets.
Thorstein Heins will have the opportunity to further explain and clarify his position when RIM's management meets with stockholders on Tuesday. Hopefully, there will be some good news for investors. (See: BlackBerry's Delay Could Lead to Lawsuits.)
The comments that I am getting on single source premiums are interesting and relevant. I want to clarify a couple of points and provide some additional thinking.
First, I am talking about single source situations, not sole sourced ones. The difference is that in a sole source situation, there are no alternatives whereas in a single sourced situation there are. Sole source pricing is interesting in that I have found few companies happy with their sole source pricing. On sole source devices, pricing is high because of the intellectual property content and, once an initial price is set, the sole source suppliers tend to maintain high margins without much cost reduction being passed on. Sole source pricing usually only changes when a company has some extra leverage with the supplier, like awarding a new design win for a major product, and when the company can connect the on-going supply negotiations with the new design award. Cost reduction on sole sourced devices is often achieved through technology refresh to the next generation product.
While it is possible for a supplier to have a strategic relationship where companies get excellent pricing on single sourced components, I would question how often this occurs? What evidence does a company have that this is occurring? How do they know? Is it what the salesman tells them?
Finally, there is a relationship between cost and volume. Onetime costs such as set up time or order management fees must be amortized over volume giving a clear cost vs. volume relationship but this does not appear to extend to price. Cost and price are related through an elastic parameter called margin that destroys the price vs. volume curve. As the supply channel gets longer (Manufacturer, Distributor, Contract Manufacturer) this margin elasticity stacks up causing more variability in price.
One thing is clear; the answer is not simple which is why I am reverting to data. My database has information from many corporations around the globe. These are some of the largest, most respected and sought after companies as well as many medium and small businesses. The data comes from OEM, EMS and distribution companies. Through data mining, I am finding a number of surprising relationships that I will report on over time. My current project is looking at the cost of being single sourced. I plan to publish these results through EBN in a few weeks when my analysis is complete. In the meantime, what is your opinion on single sourced premiums?
Mr Heins seems to live on a different planet as it appears. He definitely has some explaining to do. I hope the investors will be pleased with what he has to offer.
I think they need to decide what they want to be. IMHO, they lost their identity along the way, and right now are trying to fight several fights at the same time.
They should also start delivering products and stop talking.