Critical Analysis Paper 2

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COMPANY PROFILE

Research In Motion Limited

REFERENCE CODE: 09B9554F-030F-4E53-9C58-AE97FC84E2AC PUBLICATION DATE: 29 May 2013 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

TABLE OF CONTENTS

Company Overview..............................................................................................3

Key Facts...............................................................................................................3

SWOT Analysis.....................................................................................................4

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Research In Motion Limited TABLE OF CONTENTS

COMPANY OVERVIEW

Research In Motion Limited (doing business as BlackBerry) (RIM or "the company") is engaged in the research, design, manufacture and sale of wireless communications products, services and software. The company operates in North America, Europe and Asia Pacific. It is headquartered in Ontario, Canada and employed approximately 12,700 people as of March 2, 2013.

The company recorded revenues of $11,073 million during the fiscal year ended March 2013 (FY2013), a decrease of 39.9% compared to FY2012. The revenues decreased primarily due to lower shipment volumes and lower average selling prices of hardware products. The operating loss of the company was $1,235 million during FY2013 compared to an operating profit of $1,497 million in FY2012. The net loss was $646 million in FY2013 compared to a net profit of $1,164 million in FY2012.

Note: RIM has been operating under the name of BlackBerry since January 2013. The legal name of the company has not changed but the company is expected to do business as BlackBerry until shareholders vote for the official change at the company's annual general meeting in 2013.

KEY FACTS

Research In Motion LimitedHead Office 295 Phillip Street Waterloo Ontario N2L 3W8 CAN

1 519 888 7465Phone

1 519 888 7884Fax

http://www.blackberry.comWeb Address

11,073.0Revenue / turnover (USD Mn)

MarchFinancial Year End

12,700Employees

BBToronto Ticker

BBRYNASDAQ Ticker

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Research In Motion Limited Company Overview

SWOT ANALYSIS

Research In Motion Limited (doing business as BlackBerry) (RIM or "the company") is engaged in the research, design, manufacture and sale of wireless communications products, services and software. The company has established a strong presence in the enterprise niche which facilitated a favorable competitive environment. However, increasing adoption of bring your own device (BYOD) policies by several companies could threaten the company’s market share.

WeaknessesStrengths

Delayed product launches could negatively impact business

Enterprise niche provides a favorable competitive environment

Declined financial performanceStrong product design, engineering and R&D capabilities

ThreatsOpportunities

BYOD movement could decline the company’s share in the enterprise solutions market

Positive outlook for smartphone and tablet market Growing demand for cloud services

Rapid technological changes and short product life cycles

NFC-enabled devices to drive future growth

Competitive pressure could weaken the company’s market position

Strengths

Enterprise niche provides a favorable competitive environment

RIM has historically focused on business-grade solutions which has won the company a market-leading role in the enterprise market.The functionality, security and reliability of the BlackBerry Enterprise Solution has enabled the company to become the leader in the enterprise mobility market with more than 90% of the Fortune 500 companies deploying the BlackBerry solution. RIM's unique security architecture of the BlackBerry platform is of value addition to the corporations and governments around the world and continues to stand out in the marketplace. The company has enhanced its enterprise mobile device management and security offerings with the launch of BlackBerry Enterprise Server 10 and BlackBerry Z10 mobile devices which have seen a strong growth in the North American market in the recent times. In addition, the company holds a significant position in the emerging markets. According to industry estimates, more than 40 million of BlackBerry’s 75 million current users are in emerging markets. BlackBerry devices have leading position in emerging markets such as South Africa, Nigeria, Columbia, Mexico, and Indonesia. Moreover,

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Research In Motion Limited SWOT Analysis

BlackBerry Messenger social messaging service, which operates on the legacy second generation (2G) networks as well as third generation (3G) networks, provides a competitive advantage over its peers.

RIM has also forayed into the cloud technology and it has been part of the company's business for a long time.The always-on connectivity of a BlackBerry smartphone is powered by RIM's own cloud infrastructure - an infrastructure which has been developed, managed and refined for more than 10 years.This infrastructure helps RIM deliver real-time data push, market-leading security and backend integration with carrier systems. This cloud infrastructure will be a competitive advantage as the enterprise adaption of cloud continues to increase. While the mobile communication device market is highly competitive, RIM was able to successfully establish a niche in the enterprise market. The company offers a unique set of services while its competitors are yet to target the enterprise market effectively. As a result, in this niche segment, RIM is able to establish a favorable competitive environment. The company's leadership position in the enterprise market will facilitate competitive advantage.

Strong product design, engineering and R&D capabilities

The company has strong product design, engineering, research and development (R&D) capabilities. RIM’s R&D strategy seeks to provide broad market applications for products derived from its technology base. As of March 2, 2013, the company’s R&D team consisted of approximately 6,000 full time employees. During FY2013, RIM’s R&D expense was approximately $1.5 billion, representing approximately 13% of the company’s overall revenues. The company’s R&D efforts are focused primarily on developing new devices for current and emerging wireless network technologies and market segments; developing core technology and platforms for next generation air interfaces and networks, including evolution of 3G and 4G wireless networks; developing server and desktop software for enterprise and consumer environments; developing infrastructure systems to provide the underlying support for wireless network and internet connectivity; and improving manufacturing and testing technologies, among others. In addition, RIM is also engaged in longer term fundamental research both directly and by selective funding of university research projects.

The company developed and employed a range of technologies and processes that resulted in the development of competitive products. RIM’s component packaging and attachment technology combined with proprietary software and firmware features allowed the company to customize its core proprietary hardware designs to address new applications, network protocols and transmission frequencies. Its radio transceiver technology supports multiple protocols in the wireless data communications market, supporting its position as a primary supplier of wireless and related hardware and software products. RIM’s robust R&D capabilities have also allowed it to develop its own radio code stack and incorporate this radio code stack into the processors that are deployed in BlackBerry smartphones. Additionally, QNX, a subsidiary of the company, has developed a mobile computing platform utilizing the unique micro kernel POSIX certified tablet operating system (OS). This OS supports the first generation of professional grade BlackBerry PlayBook tablets and is the basis for BlackBerry 10 smartphones.

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Research In Motion Limited SWOT Analysis

Strong product design, engineering and R&D capabilities enable RIM to develop innovative products, which allows it to remain at the forefront of its respective businesses and differentiate its offerings in a highly competitive market.

Weaknesses

Delayed product launches could negatively impact business

RIM has encountered delays relating to new product introductions over the past two years, and delivering new products on a timely basis has proven more challenging than the company had anticipated. The company has been unable to keep pace with the rapidly evolving mobile market where Apple and Google's Android platform are adding customers at a fast pace. For instance, in FY2013, the introduction of RIM’s first BlackBerry 10 smartphones was delayed, in part, because of complexities in the development and integration of a completely new technology platform. This resulted in lower than expected unit shipments as customers worked through inventory and awaited the launch of the new BlackBerry 10 smartphones. In addition, the company repeatedly delayed the launch of BlackBerry Bold 9900 model in 2011.

Moreover, RIM had several glitches with its products which severely hampered the company's ability to seamlessly move between platforms and product lines. The company's inability to launch a major BlackBerry model has been one of the reasons for losing the market share to Apple and Google. If the company experiences further delays relating to the launch its BlackBerry smartphones or other products or services, such delays could have a material adverse impact on the company’s business, results of operations, financial condition and future prospects.

Declined financial performance

RIM recorded weak financial performance in the recent times. The company’s revenues declined from $19,907 million in FY2011 to $11,073 million in FY2013, representing a compound annual rate of change (CARC) of 25% during that period. In FY2013, RIM’s revenues declined 39.9% year-on-year (YoY). The revenues decreased primarily due to lower shipment volumes and lower average selling prices of hardware products. Continuous decline also impacts the company’s profits and margins. In FY2013, RIM recorded an operating loss of $1,235 million compared to operating profits of $1,497 million and $4,636 million in FY2012 and FY2011, respectively. In addition, the company’s operating margins declined from 23.3% to -11.2% during FY2011–13, and its net margins declined from 17.1% to -5.8% during the same period.

RIM also witnessed a decline in its cash position. The company’s cash from operations declined from $4,009 million in FY2011 to $2,303 million in FY2013, representing a CARC of 24% during that period. Moreover, RIM’s free cash flow declined at a CARC of 20% during FY2011–13 to reach $1,890 million. Declining financial performance positions RIM at a competitive disadvantage and also negatively impacts investor confidence.

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Research In Motion Limited SWOT Analysis

Opportunities

Positive outlook for smartphone and tablet market

The smartphones and tablets market is expected to grow at a robust pace in the medium term. According to industry estimates, global smartphone shipments are expected to increase from 655 million units in 2012 to reach 865 million units in 2013, an increase of approximately 32% compared to 2012. By the end of 2013, smartphones are projected to account for 44% of the overall handset shipments. Furthermore, tablet shipments are expected to reach 191 million in 2013 and are further estimated to reach 350 million units by 2017. Additionally, Asia Pacific is estimated to account for approximately 34% of tablet owners worldwide by 2017.

The company has a significant position in the global smartphones and tablets market. RIM offers its smartphones and tablets under the brand name of BlackBerry. Robust outlook for the smartphone market and tablet market will increase the company’s sales in the coming years.

Growing demand for cloud services

The worldwide demand for cloud computing services is expected to record strong growth. Cloud computing is a computing infrastructure model, which enables delivery of software-as-a-service. This reduces the upfront royalty or licensing payments, investment in hardware and other operating expenses. According to industry estimates, the global cloud computing market is forecasted to reach approximately $160 billion in 2013. The public cloud services market is forecasted to reach $207 billion in 2016. In addition, the global cloud computing market is projected to reach a value of over $240 billion in 2020. With the growth of cloud computing services, enterprises are expected to gain revenues from SaaS, platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) in the medium term.

Corporate customers are increasingly moving their IT infrastructure to cloud-based architectures and RIM is well positioned to benefit from this shift. The BlackBerry solution was developed from the beginning as a cloud-based service and it is this robust architecture that enables many competitive advantages for the BlackBerry solution, including real-time push services, industry leading security and back-end integration with carrier provisioning and billing systems. RIM plans to further leverage these strengths to grow presence as a cloud-based enterprise service provider through a variety of strategies including partnerships with other leading suppliers of cloud-based solutions. By leveraging its established cloud infrastructure, the company can bolster competitive position in the growing cloud computing market.

NFC-enabled devices to drive future growth

The telecommunications industry is witnessing rising demand for near field communications (NFC) technology. NFC is a contactless technology that allows a device to share and access data over short ranges. NFC devices can be used in contactless payment systems, similar to those currently

Research In Motion Limited SWOT Analysis

used in credit cards and electronic ticket smartcards, and allow mobile payment to replace or supplement these systems. According to industry estimates, NFC technology is forecasted to account for approximately $74 billion in mobile transactions by 2015. It is further estimated that NFC enabled smartphones will account for approximately 28% of global market by 2015. Moreover, the number of NFC-enabled devices in use is projected to cross 500 million in 2014.

RIM has a significant presence in NFC market. The company has positioned itself as an industry leader in NFC and implemented this technology in a variety of its smartphone models. Also, the company increased it focus on NFC technology, which allowed entering into significant deals. For instance, RIM was selected by EnStream, a joint venture of Bell Mobility, Rogers Wireless Partnership and TELUS Communications, to provide its Secure Element Manager (SEM) solution to manage credentials on wireless handsets in Canada that support Near Field Communication (NFC) services. In addition, RIM’s SEM solution for NFC mobile payments was approved by Visa in January 2013.

RIM’s NFC-enabled devices provide a competitive advantage and also position the company to benefit from the projected growth in the medium and long term.

Threats

BYOD movement could decline the company’s share in the enterprise solutions market

The enterprise market is currently characterized by a combination of enterprise-deployed devices and devices that are purchased by consumers but also used in the corporate environment, commonly referred to as “Bring Your Own Device” (BYOD). The company encountered challenges adapting to the BYOD movement as some IT departments that previously required employees to use the BlackBerry wireless solution because of its emphasis on security and reliability permitted employees to choose devices offered by the company’s competitors. This has resulted in a decrease in RIM’s enterprise subscriber growth rate. BYOD strategies are being adopted by several companies in order to cut costs. While BYOD is relatively a new phenomenon, adoption rates are growing steadily.

In addition, competition for the enterprise market has been mounting. According to industry estimates, Apple's iPhone recently overtook the BlackBerry in enterprise usage, while Google’s Android is rapidly gaining market share. Although, RIM is focused on addressing the BYOD trend, the popularity of its competitors’ products threatens the company’s success in this segment. Increased adoption of BYOD policies by several companies could threaten the company’s market share.

Rapid technological changes and short product life cycles

The wireless communications industry is characterized by rapid technological changes, evolving industry standards, frequent new product introductions and short product life cycles. Consequently, RIM's operational performance is directly correlated to the company's ability to keep pace with these technological advancements and offer products at competitive prices. The process of developing new technology however is complex and is associated with uncertainty. RIM's business will be

Research In Motion Limited SWOT Analysis

hampered if it is unable to accurately predict emerging technological trends and keep pace with the changing consumer preferences. Additionally, if the company's competitors launch any new technologically advanced products, the demand for RIM's products will be adversely impacted.

In addition to the uncertainty associated with the rapid technological changes, the short life cycles associated with the industry will adversely affect the return on the investments for new product launches. A technology could become obsolete before the costs are recovered. All these factors impact the revenue generation potential and the profitability of operations adversely. RIM has in the recent past suffered market share losses partly due to its inability to predict the end user demand accurately and partly as its competitors launched advanced products at a faster pace. Any such rapid technological advancement could further impact the company's operations adversely.

Competitive pressure could weaken the company’s market position

RIM is engaged in an industry that is highly competitive and rapidly evolving, and has experienced intense competition from a number of companies. Increased competition in the consumer segment declined the company’s global market share over the past several years relative to companies such as Apple with its iOS ecosystem, and companies that build smartphones based on the Android ecosystem, such as Samsung. Providers of mobile operating system platforms that compete with RIM’s BlackBerry platform include Apple, Google, Microsoft, and Nokia. In the wireless data communications access market, the company competes with Apple, Amazon, Dell, Fujitsu, General Dynamics, Hitachi America, HTC, Huawei Technologies, LG Electronics, Mitsubishi, NEC, Nokia, Samsung, Sharp, Sony and ZTE.

In addition, RIM faces competition from companies focused on providing middleware to facilitate end-to-end wireless messaging solutions. Companies in this category include AirWatch, BoxTone, Citrix Systems, Good Technologies, IBM, Microsoft, Mobile Iron, Notify Technology, Openwave Systems, Seven Networks and Sybase. Some of the company’s competitors have greater name recognition, larger customer bases, and significantly greater financial, technical, marketing, public relations, sales, distribution and other resources than the company does, and such competitors have increased their market share at the expense of the company. This is particularly the case in the tablet segment where RIM has faced challenges entering and in which there are many established computer and wireless communications industry participants with significantly greater experience, infrastructure and distribution channels than the company. Competitive pressure could impact the company’s growth and market share.

Research In Motion Limited SWOT Analysis

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