RIM Investors Not Happy With Shakeup

After a harsh 2011, BlackBerry (Nasdaq: RIMM; Toronto: RIM) co-CEOs Mike Lazaridis and Jim Balsillie resigned Sunday night, putting executive leadership in the hands of the newly minted CEO and president, Thorsten Heins.

What happened to the stock? RIM investors looking to catch a break didn't get one. The stock fell 8% in Monday's trading, leading many to believe investors lack confidence in the new plan.

Though they are no longer the chief executives, Balsillie and Lazardis remain hooked into the company. Lazardis was named vice chair of RIM’s board and will head the board’s newly formed innovation committee. Balsillie retained his seat on the board.

RIM’s shares, which had hit a 52-week high of $70.54, fell below $16 Monday. The company faces many questions about its plans as competition intensifies in the mobile arena.

The issue for investors is the declining long-term fortunes, both in terms of profits and wireless device marketshare. The company is still making money, though its profits are declining. For the fiscal quarter that ended Nov. 26, RIM reported net income of $265 million on revenue of less than $5.2 billion. A year earlier, it reported $911 million of net income on $5.5 billion of revenue.

It's also clear that investors question whether the changes have been strong enough for the company, since the former co-CEOs still play a role on the board. An 8% stock drop isn't exactly a ringing endorsement of the new CEO or the management shuffle. Investors might have seen the shakeup as too weak.

“The new chief executive said he’s not going to break [RIM] apart, and he’s going to look for licensing” agreements, said Robert Rosenberg, president of the telecom market specialist Insight Research Corp.

Heins, previously chief operating officer of product and sales at RIM, needs to put new strategies in place to win back investor confidence. He faces a hard fight to prove the company has some of its old potential in an aggressive market. It was forced to eat a $485 million inventory adjustment charge for its fiscal third quarter because of unsold BlackBerry PlayBook tablets.

BlackBerry's best bet is retaining its favor among corporate and government entities for information security, but the mobile landscape is rapidly filling with Google Inc. (Nasdaq: GOOG) Android-powered smartphones from multiple manufacturers. Rosenberg says RIM’s new CEO is considering a similar approach. “When Heins says he is open to licensing partnerships, it means he’s going to try to find third parties that can add value and stay with the curve that is being driven by Android.”

The Apple Inc. (Nasdaq: AAPL) iPhone line and, to a lesser extent, Microsoft Corp. (Nasdaq: MSFT) Windows Mobile smartphones also continue to gain ground in the mobile world. “Apple has a lot of momentum, does good software, and is continuously in your face with new software,” Rosenberg said.

Other types of smartphones are creeping into workplaces, sometimes unofficially, but Rosenberg still sees BlackBerry devices in the hands of many enterprise users. “I can’t imagine businesses, given the reliability of the hardware, would start to give away iPhones. It’s just not reasonable.”

The fight for the mobile market extends beyond smartphones. Android-based tablets and iPads continue to square off for dominance, but RIM said in December that its BlackBerry PlayBooks required more aggressive marketing to move its backlog of inventory. The PlayBook 2.0 is expected to ship in February, but much of the world is waiting for word of Apple’s iPad 3.

Rosenberg said he did not want to speculate on RIM’s long-term future, despite its recent challenges. “No one disappears in a day. The question is ‘Are you positioned to make incremental gains over time?’”