RIM is for many both a great smartphone manufacturer and a source of patriotism. It’s a leader in the ITC (Information and Communications Technology) sector and their executives, especially Jim Balsillie, are quick to point out that it’s a Canadian firm.
This brief description may remind you of another Canadian firm: Nortel. Nortel was also a source of Canadian pride as a prominent, high-technology firm based in Canada.
Both companies, due to their size and influence, have a notable impact on the Toronto Stock Exchange. While RIM occupies about 3% of the TSX, Nortel once accounted for more than one-third of the main TSX index.
Although there are a few similarities in the two companies, they are completely different and it’s safe to say that RIM will not suffer the same fate as Nortel.
Management at Nortel was infamous for receiving millions in incentives that promoted unethical business practices. In 2004, several of its top executives – including former CEO Frank Dunn – were accused of cooking the books to inflate profit numbers, resulting in millions of dollars of bonuses to these individuals. Last year, criminal charges were laid against Dunn and others.
Jim Balsillie got in trouble with the the OSC which alleged the executives backdated and repriced stock options using dates on which the market price of RIM’s shares was relatively low. Handing out options at the lower prices had the effect of improperly enriching the recipients and, the OSC alleged, could have deprived RIM of about C$66 million.
While both companies seem to be involved in some shady practices, they can’t really be compared because they are on completely different scales. The result of the Nortel scandal resulted in billions in losses for shareholders. The result of the RIM and OSC case was that Balsillie paid a penalty of C$5 million ($4.1 million), while Co-Chief Executive Mike Lazaridis paid a C$1.5 million penalty. The two also paid investigation costs to the regulator.
According to Kevin Restivo, a communications technology analyst at IDC Canada, “RIM and Nortel are very different companies,” he said. “Other than the fact that they’re both based in Canada and both publicly traded companies in the ICT sector … the companies’ histories and similarities separate pretty quickly.”
Some point to competition in the telecom industry, coupled with the crippling accounting scandal, resulted in Nortel’s eventual demise. The telecom industry began to see a large number of mergers such as Alcatel-Lucent and Nokia Siemens Networks, which left Nortel at a disadvantage. With the accounting scandal at hand, the company was in no condition to recover and eventually had to be protected from bankruptcy and sold off.
It’s competition that is also the popular topic when discussing the future of RIM. The difference is that competition will actually make RIM stronger in the end. Sure, market share in North America is fluctuating given sales of the iPhone, but can anyone prove that Apple sales have a negative impact on RIM’s growth? The App Store led an evolution in the market that RIM is still generating considerable profits from, having followed the trend with App World. Competition is also increasing the overall number of smartphone users, and this trend is helping to increase sales for RIM. Other smartphone manufacturers may represent competition, but for some reason the Palm Pre is often cited. Remember, Palm only sold 810,000 units last quarter compared to 8.9 million devices for RIM.
So while these two companies represent the talent that Canada possesses in the ICT world, they will have two very different fates.