BUSINESS
10/11/2011 07:13 EDT | Updated 12/11/2011 05:12 EST

RIM says Internet problems in Europe, Middle East and Africa partly resolved

The maker of BlackBerry smartphones says the problems that have plagued millions of users around the world were caused by a core switch failure within the company's network.

Research in Motion Ltd. (TSX:RIM) said Tuesday that a transition to a back-up switch did not function as tested, causing a large backlog of data.

In an update, the Waterloo, Ont. smartphone maker said it is now working to clear the backlog and restore normal service as soon as possible.

Large numbers of BlackBerry users in Europe, the Middle East, Africa, India, Brazil, Chile and Argentina experienced problems for a second day, with many unable to access email and messaging services.

RIM has about 70 million BlackBerry subscribers around the world.

Such continued technical glitches are likely casting a pall on the company's image and hampering its fight for market share against the Apple and Android smartphones, a technology analyst said Tuesday.

Negative headlines on service outages won't help RIM's brand with consumers, said Edward Jones technology analyst Bill Kreher.

"The current perception of Research In Motion is becoming increasingly more negative and this does little to stem that trend," Kreher said from St. Louis, Mo.

RIM (TSX:RIM) is being hurt by the "ongoing loss of market share and the ineffectiveness of current management, to be blunt" he said, adding he isn't optimistic that the new generation of BlackBerry smartphones hitting the market next year will make a difference.

"Given RIM's historical record of reliable service, it is critical that the company get the network back up and running as soon as possible," Kreher said.

Adding to RIM's woes, Toronto-based institutional investor Jaguar Financial Corp. renewed its call Tuesday for a shakeup of RIM's management and either the sale or split-up of the company.

Vic Alboini, chairman and chief executive of Jaguar (TSX:JFC), said a total of 12 institutional shareholders are calling for changes at the company. Together they own about eight per cent of the BlackBerry maker's stock.

Alboini noted that the other shareholders don't want to be named publicly at this time.

The head of Jaguar said the changes that are being pushed for at RIM won't happen quickly.

"I suspect this is not going to be a sprint," Alboini said. "This is going to be a marathon."

Kreher said a battle by activist shareholders may not lead to a "positive outcome."

"We believe Jaguar's action could lead to a protracted fight which ultimately may further hurt Research In Motion. In other words, we continue to believe the company's prospects will get worse before they get better."

Alboini said appointing an independent chairman to RIM's board of directors would be the most immediate change that could happen. It would take five of the nine directors to appoint a new chairman.

As for the technical problems RIM is experiencing, Alboini said it happens from time to time with technology companies and won't have an effect on his campaign.

"All companies get bugs and have issues, so I don't think it's appropriate for us to zero in on RIM," he said.

"If it became a critical issue that could not be fixed, and it was evidence of a totally broken situation, that's different."

RIM faces major hurdles as it deals with mounting competition in the smartphone market and the growing speculation among analysts and industry experts that its days of rapid growth are behind it.

RIM was once worth about $70 billion and has, from time to time, been Canada's most valuable company. Today it has a market value of about $12 billion or so and shareholders have complained about its lagging stock price and corporate leadership.

Shares in Research In Motion rose 84 cents, or 3.5 per cent, to close at $25.14 on the Toronto Stock Exchange.

— With files from The Associated Press