CEO Heins Is Staying the Course

By Peter Burrows and Hugo Miller

Illustration by 731; Grave: Photograph by Alan Thornton/Getty Images

When tech giants fall, they rarely get up again. Onetime titans such as Digital Equipment, Compaq, Lucent, and Palm went cold and then were ignominiously acquired. Xerox and Nokia have limped along for years. Kodak just filed for bankruptcy protection. Only two tech companies have bucked the trend: Steve Jobs’s Apple and Lou Gerstner’s IBM.

The lessons of those exceptions are legendary. When Jobs returned to Apple in 1997, he winnowed its product line, replaced most of the board, and expanded into new markets such as music players. After arriving at IBM in 1993, Gerstner slashed more than 100,000 jobs, killed its uncompetitive OS/2 PC operating system, and began a massive shift from hardware to consulting.

The message was different when, under shareholder pressure, the board of BlackBerry maker Research In Motion finally replaced co-Chief Executive Officers Jim Balsillie and Mike Lazaridis with COO Thorsten Heins on Jan. 22. “I don’t think that there is some drastic change needed,” said Heins, a former Siemens executive, in his first conference call as RIM’s new boss. Staying the course, however, will be a challenge, and investors have already registered displeasure. After Heins’s comments, RIM’s stock fell more than 8 percent. RIM declined to make him available for this story.

The current plan is for RIM to continue investing in both hardware and software, scrapping its aging BlackBerry operating system for one called BlackBerry 10 based on software from a company acquired in 2010 and used to run nuclear plants. So far, the outlook isn’t encouraging. The PlayBook tablet, RIM’s first device based on an early version of the new operating system, has been a flop. And as RIM reboots in tablets, Apple’s iPad is dominating the first major new corporate hardware market in years. Veeva Systems co-founder Matt Wallach, who has sold pharmaceutical sales software for 14 years, says 95 percent of his customers are equipping employees with iPads, and the other 5 percent are considering it. “The iPad’s success in the enterprise means that RIM is dead, at least in pharma,” Wallach says.

To succeed against Apple, which reported more than twice as much in profits last quarter ($13.1 billion) as RIM did in revenue ($5.2 billion), the BB10 phones will need to do far more than match the quality of iPhones and Android devices. They’ll have to roll out some groundbreaking features—“and that’s a herculean task,” says Matt McCormick, an asset manager at Bahl & Gaynor in Cincinnati.

Of course, it’s possible that RIM could regain its position as a top choice for app makers, consumers, and corporate buyers. The Waterloo (Ont.)-based company still generates healthy cash flow and has 75 million subscribers worldwide. Its executives point to BlackBerry’s dominance in emerging markets such as South Africa and Mexico. The company plans to introduce a line of gadgets based on BB10 in the second half of this year, Lazaridis said last month. “We’re excited and confident in our future,” says spokeswoman Tenille Kennedy. “We’re willing to have shareholders judge Thorsten and RIM on its performance.”

Still, history shows that it would be difficult to stage a comeback. “Once you become a dinosaur, it’s hard to catch up,” says Richard J. Moroney, chief investment officer of asset management firm Horizon Investment Services. RIM’s stock price remains about 10 percent above its level at the end of 2011, a year in which the company lost three-quarters of its value. And its share of the smartphone market tumbled to 11 percent in the third quarter of 2011 from 21 percent two years earlier, according to Gartner.

RIM might fare better if it were allied with a larger company, but the list of potential suitors is short. Microsoft is busy building its own operating system and focusing on its partnership with Nokia. Samsung once seemed like a possibility: It has a thriving smartphone business but is reliant on Android software from Google, which bought a competing handset maker, Motorola Mobility. A Samsung spokesman said the company isn’t interested. With a market cap of about $8 billion, RIM is likely too pricey for private equity firms to swallow.