RIM in ‘Race Against Clock’ on Disruption

By Jonathan Browning, Hugo Miller and Adi Narayan - Oct 13, 2011 3:07 AM GMT+0700
Enlarge image

A man holds a Research In Motion Ltd. BlackBerry smartphone at a mobile phone store in Mumbai, on Sept. 28, 2011. Photographer: Adeel Halim/Bloomberg

Play Video

Oct. 12 (Bloomberg) -- Alex Gauna, an analyst for JMP Securities LLC, talks about Research In Motion Ltd.'s BlackBerry service disruptions and the outlook for the company. He speaks with Jon Erlichman and Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Research In Motion Ltd. (RIMM)’s BlackBerry service was disrupted for some users in North America, as a snag that is halting messaging for a third day across Europe, the Middle East and Africa spread to its largest market.

Subscribers in the Americas may experience “intermittent service delays,” RIM said on its website today. The company said it is working to resolve the issue and apologized to users.

RIM, which has built a reputation as a maker of secure and reliable e-mail devices, is struggling to stem declines in market share to touch-screen phones such as Apple Inc. (AAPL)’s iPhone that offer more consumer applications. The service disruptions began in areas that RIM is counting on for sales growth as revenue in North America drops.

“It’s like being disconnected from the world because people have gotten so addicted to BlackBerry services,” Nilesh Dedhia, managing director of Vidhi Wealth Management in Mumbai, said in an interview.

The disruptions began in Europe and Asia early this week. BlackBerry users continue to have problems accessing data services as RIM works to clear the backlog of data, U.K.-based mobile-phone operator Vodafone Group Plc (VOD) said today.

“The resolution of this service issue is our number one priority right now and we are working night and day to restore all BlackBerry services to normal levels,” RIM said on its U.K. website.

RIM, based in Waterloo, Ontario, fell 2.2 percent to $23.88 at the close in New York. It has lost 59 percent this year.

Data Backlog

RIM routes its traffic through two main centers, in Waterloo for North America and in Slough, southern England, for Europe, the Middle East and Africa, said Nick Dillon, an analyst at research firm Ovum in London.

That network concentration “has always been a risk to the service,” Dillon said. BlackBerry “is still the most robust e- mail system.”

RIM said the delays were caused by a core switch failure within its infrastructure. While the system is designed to transfer to a backup switch, that didn’t happen, it said. The result was a large backlog of data.

The company believes it has identified the root cause of the problem though will do further tests to make sure, David Yach, RIM’s chief technology officer of software, said today on a conference call.

The problem is centered on its U.K. hub and service disruptions in North America were primarily caused by the backlog, not by technical faults there, Yach said.

Race Against Time

For RIM, facing investor demands for a shakeup in strategy and calls for new leadership, the interruption comes at an inopportune time. The company has to fix the problem today to avoid sacrificing customer data as the backlog grows too great and alienating clients, said Malik Saadi, an analyst at Informa Telecoms & Media in Guildford, southern England.

“They cannot afford to have the problem for one more day, because the data backlog will just be massive,” Saadi said. “It’s really a race against the clock.”

Yach said the company has no plans to erase data to cut through the backlog.

Regions outside the RIM’s traditional stronghold of North America are accounting for an increasing share of its revenue and new subscribers. As RIM’s U.S. revenue dropped 50 percent last quarter to $1.11 billion, sales outside the U.S., U.K. and Canada jumped 38 percent to $2.33 billion.

‘PR Challenge’

“These outages create another highly visible PR challenge, coming in markets where the company is still growing,” Mike Abramsky, an RBC Capital Markets analyst in Toronto, said in a note to clients. He has a “sector perform” rating on the stock.

Users in India, one of RIM’s growth markets, were among those experiencing disruptions. BlackBerry users in South Africa that use local carrier Vodacom Group Ltd. received a text message telling them that “BlackBerry services could remain impaired for the remainder of today.”

Services were also disrupted in Brazil, Chile and Argentina yesterday.

To contact the reporters on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net