RIM: when 35.7% margin looks bad

RIM has cash ($2.1 billion), and cash flow ($1.1 billion), and margin (33.
Written by Simon Bisson, Contributor and  Mary Branscombe, Contributor

RIM has cash ($2.1 billion), and cash flow ($1.1 billion), and margin (33.4% -a figure PC OEMs can only dream of) that are all better in the three months from December to February than they were in the three months before. The margins for the year are even better; 35.7% But it's not getting them by selling more handsets, and both revenue and profits are down. Depending of what you think of the way financial reports put a dollar value on bad news, you could argue with the $355 million chalked up to lost goodwill for the outage last year that brought the margins for the year down from 40% but that's still a small proportion of the $1.4 billion less revenue RIM is reporting compared to the previous year, when revenue was $5.6 billion.

That still wasn’t what Apple was making; Apple's revenue for the comparable quarter ending in December 2010 was $26.74 billion and its profit of $6 billion was more than RIM's revenue, rising to $46.3 billion and $13 billion for the 2011 figures. Apple's margin was higher too; 44.7%

RIM's not the only one with figures going in the wrong direction.

Nokia finished 2011 with just over €10 billion or $13,500 million in revenue ; up 11% from the previous quarter, thanks to dual-SIM phones and the Lumia successes, but 21% down from 2010's €12.7 billion. Profit was up 90% from the previous quarter but down a scary 56% compared to the previous year. Nokia looks better than RIM with worse percentages because Nokia is further into its 'burning platform' switch away from Symbian and it has impressive handsets based on Windows Phone (even if it's only claiming to have sold a million Lumias so far). Nokia knows what its future is and it's telling a (mostly) consistent story and selling its next generation device. The arguments over whether AT&T will update Lumias in a timely fashion wouldn't be going on if no-one was interested in the Lumia handsets.

RIM's sold a million PlayBooks too. But you have to compare the 500,000 PlayBooks it sold last quarter to the 500,000 iPads Apple sold in about 12 hours when it launched the new model and wince. It's not that the PlayBook isn't a nice tablet once you apply the PlayBook 2.0 update and get email, contact and calendar apps that take advantage of the social networks you're in to tell you useful things like 'have you been in other meetings as this person before'. It's that everything that was in the OS update for PlayBook should have been on the tablet when it launched in the first place. In fact the PlayBook shouldn't have launched without it, whatever enterprise customers told RIM about not wanting tablets that did email that wasn't coming from BES. And it still didn't include RIM's crown jewel - BlackBerry Messenger.

Putting BBM onto a BlackBerry that isn't running the BlackBerry OS is obviously technically difficult. BBM needs a secure, reliable connection so it do things no other messaging service does, like tell you reliably when the message has arrived and when it's been read. That's fantastic for staying in touch, or trash talking other fans during a football match (Sky Sports has a popular chat system built on BBM). It ought to be ideal for business workflow and for a mobile wallet, especially as BlackBerry has NFC handsets. I ought to be able to sign legal documents in BBM and pull out a BlackBerry to use as an Oystercard or a tap-and-pay device that can't be scanned the way a Barclaycard can.

But I just don't care what music the friends I talk to on BBM like best. Music is indeed social. BBM is obviously social. Gluing them together might sound like a great plan, and I suspect RIM hoped it would be its answer to ITunes, especially with a monthly subscription half the price of others. I doubt it though. I suspect that were the launch of BBM Music not so very close (Tuesday in fact), RIM CEO Thorsten Heins might have made his plans to stay in the consumer market, focus on the enterprise market and not try to be all things to all people clearer by pointing at BBM Music as the kind of thing the company wouldn't spend a lot of money on in the future. The closest he got was to say "we will seek partnerships to deliver those consumer features and content that are not central to the BlackBerry value proposition, for example media consumption applications". Maybe someone like 7digital will buy BBM Music so RIM can concentrate on what it really needs to do. Which is make some cracking new handsets and get BlackBerry 10 finished and shipping.

RIM has great technology, loyal users (77 million, up from 70 million in October 2011, which was up 40% from 50 million the year before; it sold another 11 million handsets in Q4, but upgrades and churn keep the user numbers lower) and some bold ideas. It has a new platform of its own to move to, and one that's technically superior to Android, iOS, Windows Phone and possibly even Windows 8 once all the pieces are in place. Who else has an OS kernel that can run the backbone of the Internet or a nuclear power station?

What RIM doesn't have is execution. We don't know when BlackBerry 10 phones were due so we can't call them officially late but they needed to come out, at the latest, either last autumn when Windows Phone 7.5 did or at CES this year. RIM still makes the best keyboards on any device bar none (and not everyone wants to type on a touchscreen any more than everyone wants an iPhone), the latest Bolds are stylish hardware - but even the latest BlackBerry OS looks dated. BlackBerry 10 should look great if it matches the bold new interface ideas RIM has been showing off, but we have to see it in the market. Great artists ship, as Steve Jobs used to put it.

Great artists don't usually tell you what they're doing, but RIM needs to get better at that as well. The focus on security has led to something of a culture of secrecy, which can look too much like 'we'll tell you what you need to know when you need to know it'. Two weeks before the release of PlayBook OS 2.0 RIM still wasn't telling the press or developers when the update would drop. Key developers might have known, but anyone who's trying to build a business on a platform by writing apps or trying to roll it out inside a business needs to know dates in advance. Just saying 2012 as the BlackBerry 10 launch date doesn't build anticipation; it builds frustration and doubt.

Sharpening its focus is just part of what RIM needs to do to improve its image, along with setting some firm dates for BlackBerry 10 and sticking to them. Building on BBM should mean more than finally getting it onto the PlayBook and making sure it works on BlackBerry 10. BlackBerry 10 email will be based on the EAS protocol used on almost every handset. Maybe RIM could use that to offer BBM as a service you could pay for on other platforms and expand the reach of BBM? The new BlackBerry 7 devices coming in the next few months might give cheap Windows Phone Tango devices a run for their money. But what RIM needs isn't business as usual or some quick fixes for today's problems. It needs to convince us with a long-term vision - BlackBerry 10 - and with much clearer details of how and when it's delivering that. What it really needs to back away from is trying to be Apple.

Mary Branscombe

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