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Pressure on RIM to return to former glory

TORONTO - Once synonymous with smartphone innovation, Research in Motion Ltd. (TSX:RIM) has had fans as exalted as President Barack Obama and the Queen hooked on its BlackBerrys.

TORONTO - Once synonymous with smartphone innovation, Research in Motion Ltd. (TSX:RIM) has had fans as exalted as President Barack Obama and the Queen hooked on its BlackBerrys.

Now, after a disastrous 2011 and a management shakeup at the beginning of 2012, pressure is mounting from disappointed shareholders for the company to return to its former glory.

After months of speculation that RIM's co-CEOs and company founders should either leave their management posts or sell the company off, Jim Balsillie and Mike Lazaridis announced their resignations Monday.

Thorsten Heins, the company's low-profile chief operating officer, was given the reins as chief executive at a time when the company stands at a crossroads.

"Like all companies that scale and grow globally, you hit a few bumps in the road here and there, but it is key that we learn from those mistakes," Heins told investors on a conference call.

RIM's stock was once so highly priced — it hit $140 per share in 2008 — as to briefly elevate it to Canada's most valuable company, worth more than $70 billion.

But RIM's market capitalization is now around $8.2 billion and the stock continued to slide Monday despite the shakeup in management, plummeting 9.1 per cent to $15.67 on the Toronto Stock exchange.

At its height, RIM was the smartphone leader — it all but created the whole category of products, said Paul Taylor, chief investment officer at BMO Harris private banking.

"We forget that RIM defined the smartphone market, they were the first company to integrate telephony and push email technology in a very useful form that was mobile," he said.

BlackBerrys became known affectionately as "crackberrys" for the addictive qualities that had business types frequently checking their trusted and highly secure devices for emails, while social butterflies were frantically "BBMing" friends through the popular BlackBerry Messenger instant texting service.

Obama was notably the first U.S. president to use a smartphone, and fought to keep his BlackBerry when he entered the White House. The devices are also popular with the Royal Family. When the Queen toured RIM's Waterloo, Ont., headquarters in 2010, she took home a personalized BlackBerry.

But just as the company had carved its niche as the smartphone leader, the ascendancy of Apple's sleek, intuitive and Internet- friendly iPhone began.

From rising star and stock market darling in 2001, RIM has fallen far in the past decade. Rampant operational problems and public relations gaffs cause the company to lose 75 per cent of its value in the last year.

In 2011 it struggled with faltering smartphone and tablet sales in the important U.S. market, a delayed launch of a new line of smartphones, a disappointing debut for its Playbook tablet and several PR embarrassments, including two executives whose rowdiness forced an Air Canada flight to Beijing to be diverted to Vancouver.

A worldwide, a four-day BlackBerry outage in October cost it more than $50 million in revenues and tarnished RIM's reputation. Then it warned investors that the company would book a $485-million charge on the cost of discounting the price of its PlayBooks by more than half to help boost sales. It was also forced to cut 2,000 jobs to keep costs in line.

In December, RIM reported third-quarter profits were down sharply, despite the sale of millions more BlackBerrys than in 2010 and a 35 per cent rise in global subscribers to 75 million.

The Canadian tech company has been the target of takeover talk for months and high-profile investors have been calling on the co-CEOs to step aside.

But Steven Gedeon, a professor of entrepreneurship and strategy at Ryerson University, believes it would be "arrogant and naive to say that RIM is down for the count" given its strong fundamentals.

"In the life of every company you have high points and low points and companies go through a certain life cycle," he said.

Gedeon explained that successful companies have been led by a "talent triangle" and RIM had two thirds of that formula with Lazaridis' technological skill and Balsillie's business acumen.

However, RIM has been missing a leader with one key component, operational excellence — and the resulting lack of execution has been at the root of its problem. The former co-CEOs were successful at growing the company from a startup to a household name, but now it needs someone who can focus on keeping it there, Gedeon said.

He said markets reacted unfavourably Monday to the change in leadership because investors were surprised by the succession plan under which RIM promoted an insider rather than bringing in a "top gun" from outside.

"The fact that they sort of surprised the market and said 'we're gone, and (the replacement is) the only other c-level guy you've heard of before,' that's not such a great sign. That sort of speaks to just being sick of it all."

The next milestone on the road to recovery comes later this year when RIM plans to finally launch a line of smartphones dubbed BlackBerry 10. But critics say even that will only help it catch up to the Internet-friendly Apple iPhone and Google-powered Android smartphones.

Heins said Monday that the company plans to be more focused on understanding trends in the consumer market.

"We need to be more marketing driven, we need to be more consumer oriented," he said.

RIM demonstrated the kind of high-profile marketing it intends to chase with a multimillion-dollar launch of its "Be Bold" campaign on ABC's New Years Rockin' Eve broadcast several weeks ago.

Taylor said the company will continue to be under intense scrutiny ahead of the launch of its newest generation of BlackBerrys.

"Regardless of who the senior management team is or the governance structure they need products that will resonate with consumers in the marketplace," he said.

While RIM's new operating system has so far received favourable reviews, it has a very short period to make up for its execution stumbles even as the functionality of its competitors continues to improve, he added

 
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