RIM BlackBerry Server Outage Impact

 
on October 14 2011 6:59 AM

Research In Motion Ltd. said a server problem has hampered accessing e-mails for three days by BlackBerry customers worldwide. RIM apologized for the service interruptions and delays and said there was a significant increase in service levels by Thursday.

Service has also improved in the U.S., Canada and Latin America and we are seeing increased traffic passing successfully throughout on most of our services, although there are still some delays reported and services levels may also vary from customers-to-customers. Our teams are working and trying to restore consistent service across all regions, the company said in a statement.

We believe the explicit costs of the outage will be limited to a maximum of $350 million (one month of subscriber fees) but are likely to be significantly less; however, the implicit costs could linger. An already frustrated user base is now questioning RIM's reliability, and already concerned investors are questioning RIM's continued execution issues, said Peter Misek, an analyst at Jefferies.

Outage compensation costs likely maximized out at $350 million, as Misek believes RIM has about 70 million subscribers with an average monthly fee of about $5. He believes refunding more than a month's worth of fees is unlikely.

He believes the worldwide server disruptions caused harm to the brand's image. In his view, this opens the door to competitors as corporate CTOs and IT departments may now be more open to explore other options besides the BlackBerry standard.

From the consumer side, an online poll found that 36 percent of respondents thought the outage was no big deal, 38 percent were in the middle, and 26 percent thought it was completely unacceptable, according to Crackberry.com.

His checks indicate that the RIM has been reassigning software engineers to whatever the fire drill is for the day. In the spring it was fixing the Playbook bugs, in the summer it was OS 7 and in the fall it has been rewriting the NOC/node code base to be compatible with QNX.

While management stated that the NOC/node transition was not a cause of the outage, he believes the crisis management showcased by RIM seems to be getting a C or lower grade from the Street.

After early adopters bought the new phones in September, sell-through appears to have slowed in October. We believe the new low-cost 3GS iPhone and low-end Android phones will pressure RIM in the mid-range and low-end, respectively, said Misek.

RIM stock closed Thursday's regular trading down 1.13 percent, at $23.61 on the Nasdaq Stock Market, while in after-hours the stock further moved down 0.25 percent, to $23.55.

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