By James Bow
I am not, by any stretch of the imagination, a socialist. I believe that, aside from necessary regulation and consumer protections, business and industry should be left alone as much as possible. The give and take of the free market does much to separate the wheat from the chaff. Smart business decisions are rewarded, and poor decisions are punished.
This belief of mine, however, is often challenged by the insanity of the stock market.
A case in point is Waterloo’s Research in Motion. For the past year or more, RIM has been in a hard fight for the smartphone market while Apple has advanced with the tenacity of a well-fed army. Their iPhone has been a runaway success, and the iPad is cutting into the sales of every PC netbook maker on the market.
RIM, whose BlackBerries arguably made the smartphone into the desirable consumer product that it is, has steadily lost market share. Their new Playbook has not yet proven able to compete with Apple’s iPad. Last month, the stock market responded badly to some disappointing fiscal results from RIM. It seemed like everyone was writing RIM’s obituary. The company contributed to this gloomy outlook by announcing layoffs for nearly 10 per cent of its workforce.
I have a confession to make: I don’t own a BlackBerry. I do own an iPhone 4. I’m part of the problem. But RIM is still a local company, and a big player in the economy of the Region of Waterloo. I cannot help but be concerned by its recent misfortunes, and also a little confused.
Nowhere in these reports do business analysts see fit to mention that RIM has yet to show a loss since these concerns emerged. RIM recently announced financial results for its most recent quarter, showing revenues of $4.9 billion, up 16 per cent from the same quarter last year. They shipped over 13.2 million BlackBerry devices, and nearly half a million Playbook tablets. All of this resulted in a net income of almost $700 million.
I would have expected that a company taking in close to three quarters of a billion dollars more in revenue than it puts out in expenses would be in an enviable position. I would have expected investors to be lining up around the block. So, what’s behind the doom and gloom?
The problem comes when investors playing the stock market try to predict the future, and panic. The fact that RIM is still a profitable and growing company doesn’t matter. What matters is that RIM isn’t profitable enough, or growing fast enough, for them to feel comfortable enough to keep buying RIM shares.
There are challenges in RIM’s future. Deft leadership will be required to guide the company through these waters, but the fact remains that RIM is in a good position to chart such a course. Major companies have come back from far bigger deficits to dominate the market.
Consider Apple itself. In June 1997, the company announced a loss of $740 million for that year’s second quarter. Its share prices were at the lowest they had been since the mid-1980s. Apple’s computers represented just a blip on the marketplace. Microsoft was swinging from strength to strength. Even as Apple re-hired Steve Jobs and made him CEO, there were many writing Apple’s obituary. Microsoft was the future of computing, and everybody was going to use a PC.
Of course, history didn’t turn out that way. Apple rewrote its future by being innovative and expanding its presence in markets it previously hadn’t touched. Now, Apple is worth more as a company than Microsoft.
There are challenging days ahead for RIM, but it strikes me that its position is a lot stronger now than Apple’s was back in 1997. And it was RIM’s innovation with the BlackBerry that brought the company to this position of strength in the first place. I wouldn’t count them out yet.
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James Bow is a writer and a father of two in Kitchener, Ontario.
You can read more about him at http://bowjamesbow.ca/
