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Palm 2.0? Research In Motion Tumbles After Another Lousy Quarter

Aaron Task
Editor in Chief
Fin - Daily Ticker - US

In what's become a sickening familiar development for shareholders, Research In Motion reported disappointing quarterly revenue last night, and slashed guidance for the current quarter and full year. The company also announced planned layoffs — a.k.a. "a program to streamline operations" -- as it struggles to compete with Apple's iPhone and smartphones running Google's Android operating system.

"Fiscal 2012 has gotten off to a challenging start," co-CEO Jim Balsillie said in a statement. "The slowdown we saw in the first quarter is continuing into Q2, and delays in new product introductions into the very late part of August is leading to a lower than expected outlook in the second quarter."

RIM shares were down more than 20% Friday morning and have fallen 50% so far this year. The stock has now lost 75% in the past three years, a grim performance that has many observers wondering if RIM is going the way of Palm or Motorola, other handset makers who missed a product cycle (or 2) and saw their market share and relevance decline precipitously. RIMM isn't terminal yet, it still maintains a loyal corporate customer base, but its North American market share fell to 16.5% in the first quarter from 41.3% a year earlier, according to Gartner.

"We've seen this movie before (Motorola, Nokia, Sony-Ericsson, LG, Palm) the history of wireless is littered with OEMs that had significant product/cycle share gains, but then missed structural market shifts," writes Citigroup analyst Jim Suva, who cut the stock to sell from hold today. "Bottom line, we believe RIM has no short-term fixes to improve product portfolio, brand perception, to reinvigorate share gains, revenue growth, and profitability." (Barron's Tiernen Ray catalogs the sell-side's reaction to RIM's quarter, featuring six downgrades so far.)

The company has a new operating system (QNX) and said it shipped a higher-than-expected 500,000 units of its PlayBook tablet in the first quarter, but the product has been poorly reviewed, the Blackberry line has become stale (and uncool) and there's little evidence that co-CEOs Balsillie and Mike Lazaridis have a plan in place to stem the decline.

The real problem for RIM is that it appears to have lost the consumer market to Apple and Android, which are in turn threatening RIM's once-dominant position in the enterprise space. Corporations are increasingly allowing employees to choose their own hardware, which is bad news for RIM, which hasn't introduced a major new Blackberry since last August.

As Henry Blodget and I discuss in the accompanying video, mobile devices are now platforms, which wasn't the case in the early 2000s when RIM successfully fended off a threat from Microsoft and Nokia. With apps becoming an increasingly important feature for users and the closed nature of (especially) Apple's iPhone, consumers are going to be less likely than ever to change platforms, putting even more pressure on RIM to right a ship that increasingly looks like its foundering.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com