Paul Sakuma
When the book is finally written on how Research In Motion Ltd. (RIM) found itself in this mess, it will be a story of miscalculation and delusion. The first mistake—the original sin, if you like—was the false belief that the competition was light years behind. That seemed true until about 2007, and then suddenly it didn't.
When the iPhone came along, co-CEOs Jim Balsillie and Mike Lazaridis deluded themselves into thinking that it wasn't a threat. Unlike the BlackBerry, Apple's shiny glass box was an inefficient data hog with no keyboard and a bunch of trivial and pointless software applications. It seemed like a stupid product, until it turned out to be exactly what consumers wanted.
We are now witnessing the destruction of another RIM myth—that Canada's lone remaining major technology company must be protected, that it's too vital to the economy to let slide into foreign hands the way Sudbury's nickel mines or Hamilton's steel mills did. That may have been true at one time. It isn't now. Had Microsoft tried to buy RIM, say, two years ago, the Harper government might have felt a political need to stop it; but if the same deal came along today, Ottawa would practically be obliged to say yes.
The Tories, who are not as clueless on economic matters as their opponents make them out to be, get this. The day after RIM unleashed yet another atrocious set of financial results in March, Finance Minister Jim Flaherty was asked the inevitable what-if question. Rather than ducking it, he replied: "RIM is a [public]company that trades and has shareholders of course so...they will be the masters of their own destiny."
Words with meaning, those. PotashCorp. of Saskatchewan is also a public company that trades and has shareholders, and the same federal government determined in 2010 that its destiny would not be controlled by those shareholders or, for that matter, by the bloody Australians.
So what's the difference? There are three.
It's about preservation. RIM is still profitable, rich with cash and debt-free. But the trajectory is scary. Here is the trend for RIM sales in the past three quarters: down 10% from the same quarter a year earlier, down 6%, down 25%. And here's what analysts think will happen in the next three quarters, according to Bloomberg: down 25%, down 15%, down 27%. It's in free fall.
Maybe the analysts will be wrong. Maybe the new BlackBerry line set for release later this year can slow down the decline. But even that might not be enough. It's a truism that in consumer technology, the bulk of the profits for any activity go to the market leader, and the scraps go to the second-place guy. (Think about how massively profitable Google is, and how comparatively little Yahoo makes.) RIM is now third place or worse in a number of major markets, and third-place finishers, like Olympic bronze medalists, are quickly forgotten.
As RIM's earnings and cash flow shrink, so must its work force, and it cut 2,000 jobs last year. But a large, healthy foreign company—and you can count on one hand the number that would be logical owners of RIM—would be better able to absorb the decline and take the long-term view. That might save Canadian knowledge jobs, just as the sale of former Nortel Networks divisions to stronger rivals such as Ericsson has.
It's not about exploitation. PotashCorp.'s purpose is to sell, for the highest possible price, the rich trove of fertilizer that lies beneath the surface in Saskatchewan. The company was a creation of the provincial government, which bankrolled its losses and later privatized it. It is a huge contributor to provincial revenues (an estimated $705 million in royalties this year). BHP Billiton's dopey argument for a nearly $40-billion takeover amounted to: Hey, that looks like a really good business! Can we buy it?
But while every politician likes to praise RIM, none can take credit for its success. Lazaridis and others made the business; they owned it, built it and gradually sold pieces of it in the public market to get the money they needed to turn it into a global success. Legally, of course, Ottawa has every right to block a foreign player from taking over the company under the Investment Canada Act. Morally, it has no such right.
The politics have changed. When the Harper government stopped the takeover of MacDonald, Dettwiler and Associates Ltd.'s space unit by a U.S. company in 2008, it had a handy excuse—MDA controls satellites that are supposedly important to national security. Two years later, the incompetence of BHP's PotashCorp. takeover campaign made it easy to quash.
But a third rejected deal—this time by a majority government—would send a signal that Canada is raising the barricades at a time when our companies are busy making deals abroad. Last year, Canadian businesses spent $1.21 on foreign acquisitions for every dollar that came this way. It's not worth putting that at risk for the sake of "saving" RIM.
Saving it from what?