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RIM Continues Its Domination of the Caribbean!

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RIM is in desperate need of change after its latest stumbles, and it should start with the company's co-CEOs.

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"The new law of evolution in corporate America seems to be survival of the unfittest. Well in my book, you either do it right, or you get eliminated."
--Gordon Gekko

Embattled Blackberry maker Research In Motion (RIMM) reported its third-quarter earnings after the close yesterday.

Let me start with the good news.

RIM is the No. 1 smartphone vendor in the Latin American and Caribbean regions.

OK, we're done with the good news.

Now let's talk about everything else.

On December 2, RIM took its third-quarter and full-year guidance down significantly (see: RIM: A Low P/E Does Not a Cheap Stock Make), and perhaps the foolish bulls thought that was as bad as it could get for this value trap.

They were wrong.

The third quarter was basically in-line with the December 2 pre-announcement, but RIM's fourth-quarter guidance is astoundingly bad.

RIM expects to earn $0.80 to $0.95 per share on revenues of $4.6 to $4.9 billion versus a consensus calling for EPS of $1.15 per share on $5.08 billion. Blackberry unit shipments are forecasted at 11 to 12 million units, which implies a 19% to 26% year-over-year decline within a booming smartphone market.

On top of this, next year's outlook looks pretty darn murky.

The Blackberry 10 phones that management believes are key to the future are being pushed back to the second half of 2012, which is spectacularly bad timing given that they'll be running face-first into Apple's (AAPL) iPhone 5, not to mention the never-ending stream of new Google (GOOG) Android phones.

Also, the company said that its current levels of "investments" -- a.k.a. fruitless marketing spending and aggressive discounting -- would continue next year.

So it's more than obvious that the consensus fiscal 2013 earnings estimate of $3.91, which itself has been cut down significantly lately, remains far too high considering the low probability that anyone will care about Blackberry 10 phones or the Playbook 2.0.

Now there are certain rules in life that are universally true.

Like, we do not talk about Fight Club.

And you never start anything inside the bar unless it's absolutely necessary.

But as investors, we must strive to remember a single truth about valuation: A P/E is only low when the E isn't getting smaller.

Finally, I have to comment on RIM's co-CEOs Jim Balsillie and Mike Lazaridis.

Now it's nice that these fellows are taking their salaries down to $1, but they're still overpaid because RIM's been victimized by the bullies on the block -- iPhone and Android -- for nearly five years, without an ounce of successful pushback.

The critics are right: RIM needs new blood that can put the company on offense. Half-baked products like the Playbook are evidence that RIM's strategy is set by the competition, instead of its own ideas.

There's obviously no guarantee that RIM can make a comeback, even with a new CEO. No old-school smartphone maker has survived the iPhone/Android assault. Microsoft (MSFT), Nokia (NOK), and Palm, now owned by Hewlett-Packard (HPQ), have all flopped. Samsung and Motorola (MMI), the latter of which is being purchased by Google, only made it because they hooked up with Android.

RIM needs a Hail Mary, but it shouldn't be thrown by the same guys that have been getting toasted by the competition for years.

So please, gentlemen, step aside.

R.I.P. Christopher Hitchens

Twitter: @MichaelComeau

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