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In what has to be one of the biggest drops of the year, the stock of Research
in Motion (RIM) went down by 23% as investors sold their stake and fled
the company. The reason for the drastic reaction shown by the
stakeholders is a new service-fee structure which has to be introduced.
According to the early reports, the new structure would reduce the
company’s revenues considerably. Hence, nearly a fourth of the investors
who had their money tied up in the BlackBerry maker’s stocks sold their
stakes.
Slow Sales, High Service Revenue
Over the past couple of years, BlackBerry has faced intense
competition from the new smartphones and tablets which have stormed the
market. There was a time when it was considered the premier enterprise
phone but now managers and entrepreneurs have opened up to the idea of
using an iPhone or an Android device. This has led to a decline in the
sales of the BlackBerry, severely denting RIM’s revenues and
profitability.
As the profits have gone down, the service charges levied by the
company have started accounting for a major share of the revenue. In
fact, it is considered that the service charges make up nearly a third
of the company’s revenue. In the current structure, wireless carriers
and companies have to pay RIM for utilizing its proprietary network for
routing messages across the world. The company had stated its plans to
change the structure with the launch of BlackBerry 10 which would impact
profitability.
RIM Chief Executive Tries to Salvage Situation
The RIM Chief Executive Thorsten Heins had announced on Thursday that
the company would put in place a new ‘tiered’ service-fee structure. He
had clearly implied that it would affect the company’s profits in a
negative way. From the time he made the announcement, a wave of panic
ran through the company’s investors. Throughout the whole of Friday,
they were focused on selling off their stock and escaping before it
loses value.
Heins later appeared on TV several times throughout the day to try
and salvage the situation. However, his earlier announcement had made
such an impact that there was no one to listen to him. His efforts
ultimately proved to be in vain as the company’s stock kept plummeting
over the course of the day. Those who have sold their share in the
company are unlikely to be enticed by future performance while the ones
who have held on would also be having second thoughts.
Mini Recovery Stopped In Its Tracks
Over the last three or four months, RIM’s stock had stabilized to a
great extent. With the BlackBerry 10 to be launched soon, investors knew
the stock was going to increase in price. Hence, there was high
investor interest in the stock and they had rallied to push the market
capitalization of RIM upwards. But, this latest episode has halted the
mini recovery in its tracks. As a result of the steep fall in stock
price, RIM’s market capitalization went below $6 billion.
It is unlikely that RIM would be able to salvage the situation at present. They have to wait for the launch of BlackBerry 10 to rescue their stock price.
