As Research In Motion prepares to announce its third-quarter earnings later today, one of the company's investors is calling on it to start selling off parts of the business.
In a wide-ranging statement (PDF), Jaguar Financial, a frequently outspoken critic of RIM and its co-CEOs Jim Balsillie and Mike Lazaridis, said that the time has come for the company to dump its handset business, leverage its broad patent portfolio, and become a service provider.
"Jaguar believes that RIM should sell its handset business and monetize its patent portfolio, while retaining its service business under new leadership," the investor wrote today in a statement. "Jaguar believes RIM has lost its ability to compete in the consumer hardware business and a sale or spinout to its shareholders of the handset business is recommended as an approach to restoring value."
If RIM were to follow its advice, Jaguar says, the company should be able to dramatically improve its financial performance. The investor pointed out that RIM's services business, which includes BlackBerry Enterprise Server, is a high-margin operation, but due to RIM's desire to bolster its own device sales, it's limited in its scope. By dumping the hardware business, RIM could free itself up to capitalize on the broader market.
"If the hardware business were sold, RIM can focus on managing and delivering mobility solutions in the enterprise sector for all smartphones and tablets," Jaguar wrote. "With its secure messaging platform, Jaguar believes RIM could create considerable value as a software and service provider."
That said, RIM already appears to be moving in that direction. Late last month, the company announced BlackBerry Mobile Fusion, a product that will bring its mobile device management services to Android and iOS. Companies will be able to use the platform to remotely monitor iPhones or Android-based handsets, as well as control how those products can access corporate data.
Still, the company has stuck to its plans to offer smartphones to customers. And although RIM's top management thinks that's central to the company's future success--even as its market share declines--Jaguar believes it's a matter of the company's executives failing to see the changing times.
"At this point we believe investors have lost faith in the ability of the RIM management team to carry out a proper game plan to restore value," Jaguar Financial CEO Vic Alboini said today in a statement. "Unless the independent directors push to replace management or change RIM's strategic focus, Jaguar believes that the road map to value restoration lies in a sale of RIM whether as a whole or in separate parts."
As one might expect, Alboini and his team also have an idea on how to handle RIM's top management. In today's statement, the investor highlighted two RIM board members--Barbara Stymiest and Roger Martin--who they believe, should take a "leadership" role at the company. Jaguar stopped short of saying Symiest, former CEO at TSX Group, and Martin, Dean at the Rotman School of Management at the University of Toronto, should take over RIM's board or head up the company's management team, but did say that they should "take the lead in making dramatic governance change."
Jaguar seems especially concerned with the board's decision late last year to appoint both Balsillie and Lazaridis co-chairmen. RIM has justified the decision by saying the appointments "are intended to provide the Co-Chief Executive Officers with the title of Co-Chairs for the purpose of representing the Company's business and operational interest with customers, suppliers, governments, regulatory authorities and other strategic parties consistent with the duties and authority of the office of the Chief Executive Officer."
However, as Jaguar notes, board chairpeople are, in many cases, outsiders that don't serve as CEO. That's done to make it easy for companies to make management changes if the firm isn't performing well. With RIM's co-CEOs also serving as co-chairmen, Jaguar believes they have an "unacceptable level of management dominance over independent directors," making it "highly unlikely that the Board will cause a change in leadership or a change in strategic focus."
Jaguar Financial has been saying for months that things must change, and it has been joined by both small investors and Northwest & Ethical Investments, which also called on RIM to split the roles of chairman and CEO.
But those critics appear to be fighting an uphill battle. Earlier this year, both Balsillie and Lazaridis said during an earnings call that if it weren't for their working relationship, RIM wouldn't be RIM.
"I absolutely believe that the complementary skill sets and good working relationship between Jim and I led to the success of RIM over the past two decades," Lazaridis said.