Once mobile industry titans, Canada's Research in Motion and Finland's Nokia owned significant pieces of the handset market in North America, the EMEA region and Asia.
But over the past several years, their commanding market lead in smartphones has eroded to single digit levels and given way to much more aggressive competitors -- Apple with their iOS products and Google with its Open Source Android operating system and their legion of Asian OEMs, the most successful of that army being Samsung, the Korean consumer electronics and contract manufacturing giant.
What happened? Both RIM and Nokia sat on their laurels with aging technology (BlackBerry OS and Symbian) and allowed "Not invented here" syndrome to pervade their corporate culture which eventually caught up to them.
See also: The mobile space is hot, so what is wrong with Nokia and RIM? | RIM to forego the keyboard with BlackBerry 10 | RIM cutting jobs 'in batches', eyes $1bn savings | Nokia starts to sink; 10,000 jobs cut | Nokia prepared to sell patents, maybe Apple should buy and save on lawyer fees
Nokia scrambled first to compensate by throwing their baby, Symbian, out with the bathwater in favor of a partnership with Microsoft. In the wake of the iPad, RIM bought Canadian software vendor QNX to create BlackBerry OS 10.
Only Nokia currently has handsets to show for their "Burning Platform" efforts, but like RIM, the company is in immediate danger of financial collapse due to disappointing sales, and both companies have had to trim significant employee headcount an enact other austerity measures just to stay alive.
While both of these companies have assets of potentially strategic value, neither of them are likely to survive as independent entities or even in one piece.
Both of these firms are at a very real risk of financial collapse.
Nokia has approximately €5 billion in reserves, but many analysts estimate that could be burned through in approximately one year with their current expenses, so the company is going to have to enact far more severe austerity measures than it has in place now. This could include a much larger round of layoffs reducing the company's size from its 124,000 employees to a much more manageable number.
RIM is in a somewhat better position as it has approximately $2B in cash and is a much smaller company than Nokia with only about 14,500 employees.
However, the run rate on paying for salaries and operations of their datacenter/network infrastructure and committing manufacturing resources and components to their new BB 10 products could eat that up relatively quickly, especially if the new smartphones do not succeed and they have to write off inventory as they did with the PlayBook.
Can these companies pull out of a nose dive? It all comes down to execution, how desirable their next-generation products are, and whether or not they can even continue to compete in a highly manipulated supply chain by extremely aggressive competitors.
Both of these companies have very clear disadvantages as they relate to their competitors. For Nokia and BlackBerry, I would have to point towards a significantly smaller application base, although the problem is much more severe for RIM.
There is also a basic sex appeal issue that is very hard to get around for these two companies. Of the two firms, RIM seems to have had the most difficult time with overall product appeal when compared to its rivals. Nokia traditionally has made very flashy products, so they are much more suited to adapt to the consumerization environment that has been created by Apple with their iOS products and Google's OEMs.I think at least in RIM's case, the company absolutely has been releasing inferior products to that of their competition. The PlayBook, while having excellent hardware, was marred with problems related to basic software functionality during its initial release cycle in 2011.
The PlayBook OS developer environment (which is essentially identical to the one used on the upcoming BB OS 10) is crude compared to what exists for iOS or Android and has taken a long time to manifest in its entirety. And the existing BlackBerry 7 products are technologically inferior in just about every way imaginable from the rest of competition.
Nokia has arguably released a very good phone with the Lumia 900, but the gestation period of creating a product as a result of their Microsoft partnership has been elephantine, so they have had to subsist primarily on their Symbian revenues which have been in heavy decline.I believe that Nokia made the right call with Windows Phone, but just as it is imperative to intervene with a cancer early on in its development, Nokia should have been much more proactive with their transition, which would have enabled them get their next-generation products out the door faster. Their brief flirtation with a custom Linux OS (MeeGo) instead of using a licensed product such as Windows Phone or Android was also an unnecessary distraction as well.
We also know that Nokia's Bill of Materials (BOM) for the Lumia 900 is somewhat higher than Apple's iPhone 4S, which is a more powerful device and is sold with a much higher profit margin. Considering that the Lumia has to be heavily carrier subsidized at $99, this is a recipe for losing a great deal of money.
So the question is, what can help Nokia rebound? Many industry watchers feel that Microsoft will be the white knight that will eventually come to the company's rescue. While I would have felt this way perhaps a few weeks ago, Microsoft's Surface tablet announcement has changed my perceptions about how the company feels about keeping its partners alive.
Nokia is currently Microsoft's flagship smartphone vendor, but Redmond could just as easily go the Surface route and sell their own smartphones (a la Google Nexus) instead of partnering with or buying Nokia outright.
My gut instinct is that Microsoft has their hands full with the Surface tablets, the Windows 8 launch and has already has a full plate of technology products to sell, and needs Nokia to sink or swim on its own merits. Nokia really needs Microsoft at this point much more than Microsoft needs it. And the idea of Microsoft adding even a heavily weakened Nokia with even half its current 120,000+ employee base to its payroll does sound like an unmanageable human resources burden.
I also would not discount the possibility of a company like Samsung warming up to Microsoft and producing much sexier Windows Phone 8 handsets in 2013, and taking Nokia's place as their premier smartphone vendor or even the contract manufacturer for a Surface phone.Nokia's situation is dire, but they do have some incredible photographic technology which they have developed with Pureview which could allow the company to distinguish itself from the rest of the pack as the prosumer shutterbug's phone of choice. Alternatively, it could also license this technology to other smartphone vendors. Nokia also has penetration and leadership in developing markets with inexpensive GSM feature phones, which arguably is a declining business but still has at least 3 to 5 years of life left in it.
RIM's current problems stem from being distracted heavily by the PlayBook launch in 2011. While there are a number of reasons why I still like the PlayBook, it was a bad idea for RIM to knee-jerk a tablet product into development and so soon after the iPad was released.QNX certainly was a necessary purchase in order to refresh the company's OS technology, but the efforts could have been applied towards smartphones instead. RIM would still be dealing with many of the same problems as the PlayBook in regards to software development issues, but the time to market would not have been as rushed, as key functionality such as email and PIM would have been made a priority and a QNX smartphone product would not have been released without those features working out of the box.The question remains whether or not after shedding assets can RIM exist as a services and software company. I believe that a Not Invented Here mentality and a highly protective desire to keep their own smartphone business viable has prevented them from taking leadership in BYOD and competitors' devices from participating on the BES network.
I find it very unlikely that RIM can maintain independence by shedding the handset/tablet business and simply exist as a messaging infrastructure provider.
If that is all that remains of the company, it is more than likely it will be owned/maintained by a third party due to government interests, much like Iridium was kept going after the company went Chapter 11. But that's called being kept on life support, not a vibrant living company.Both companies are prime acquisition targets but Nokia is a much less messy acquisition than RIM, as it can likely be devoured whole and the value proposition may make sense for a Chinese computer manufacturer looking to assert themselves as a smartphone power in North America, the EMEA region and other developing countries.
However, Nokia's capitalization is currently twice that of RIM's, so it's a much more pricey proposition. It may take longer (a few years) for Nokia to be an attractive acquisition target as it sheds more and more staff and other excess baggage. It's just too big and needs to shed weight before it can be integrated into another company.
RIM certainly has a number of assets of value, which includes a large array of patents, their handset design and manufacturing, the BES data communications network and NOCs and the QNX operating system itself.
The problem is coming up with someone who would want to own all of these things, not just one or two of them. RIM may be worth more money in pieces than it as as whole company, which leads to the logical conclusion that the company is going to be sold of Nortel-style.
The patents can go to just about anyone. QNX may be of value to an automotive, aerospace of telecom equipment company (such as a Cisco) because it is an RTOS. The secure data communications network for BES may or may not be of value to a company like Microsoft or even Google. The value of the company's handset design and manufacturing is questionable, although it might be synergistic with someone like Lenovo looking to attract the "executive" style consumer.
While there is no question that both of these former mobile industry giants have technology and intellectual property of value, the difficult truth is that in order to survive intact for the next several years, both need to stage tremendous comebacks.
Over the next year, this is going to involve severe austerity measures (a massive headcount scale-down at both companies as well as asset divestiture) in order to reduce the run rate on cash reserves, as well as a perfect execution of yet-to-be-released products (BlackBerry 10 for RIM and Windows Phone 8 handsets for Nokia).
Assuming the execution is perfect, we are also making a big assumption that the new products will allow them to distinguish themselves and draw attention to consumers that would otherwise be looking at the products from their competitors, such as Apple and Samsung, who are also continuing to innovate and command a very strong lead in the smartphone and tablet market.
In the case of Nokia, we cannot even be assured that their patron, Microsoft, is fully committed to keeping them afloat, given the company's recent move toward branding their own devices with Surface. And now that the public knows that the Lumia 900 will not get a Windows Phone 8 upgrade, that may make moving existing inventory difficult.
And if RIM's previous performance with attracting developers to their QNX-based PlayBook is any indication of future success with BlackBerry 10 handsets, we could very well be looking at the company's last stand come this fall.
Any way you look at this, the challenges seem nearly insurmountable.
Will Research in Motion and Nokia survive 2013 intact? Talk Back and Let Me Know.