RIM Stock On Watch After Company Admits Change Is Needed After Earnings Miss
Smaller, more efficient, sharply focused: that's likely the RIM of the future.
Having grappled with the giants of the smartphone industry and received a battering — in financial and marketing terms — Research In Motion will likely emerge a specialized company that doesn't compete head-on in the consumer smartphone market with Apple or Android devices, analysts said Friday.
After releasing dismal quarterly results on Thursday, the BlackBerry maker announced plans to rebuild itself, while opening the door to the possibility it would consider a host of corporate options, including putting itself up for sale.
The RIM that emerges from that process will be leaner and likely more focused on the things it does best — like catering to businesses that value bulletproof security and efficient enterprise software.
"Ultimately, what I think RIM ends up doing is becoming a smaller company," said Evercore Partners analyst Alkesh Shah.
"It will be more software and services-focused," Shah said from New York.
New CEO Thorstein Heins told analysts late Thursday that RIM (TSX:RIM) will shift more attention to its business users and will go after only "targeted" parts of the consumer market, possibly with partners.
"We plan to refocus on the enterprise business and capitalize on our leading position in this segment," Heins said after RIM delivered an unexpected loss in its most recent quarter.
Among the moves it could make, Shah said RIM could license its popular texting service, BlackBerry Messenger, and the encryption technology that gives its BlackBerrys security.
"Who do you think of when you think of secure communication? You think of BlackBerrys and RIM."
"They're going to be a smaller company, than say Apple or Samsung, but they could potentially be an incredibly profitable company..."
RIM could also help companies manage their networks to allow employees to use iPhones and Android smartphones in the workplace without security fears, Shah added, a move RIM has acknowledged it's late in accepting.
Software and services would compensate for lower BlackBerry sales, but turning RIM around and generating a meaningful stock recovery could take until 2015, Shah said, adding there will likely be four to six financially painful quarters ahead.
RIM won't have its next-generation of BlackBerrys out for sale until later this year, leaving the company with an older product lineup to sell.
New CEO Heins said that "BlackBerry cannot succeed if we try to be everybody's darling and all things to all people" and RIM will seek partnerships to deliver some features to the consumer market.
But the company, which is based in Waterloo, Ont., did move to dispel any perception that it plans to simply abandon the consumer market.
"Rest assured, TeamBlackBerry, RIM is still very committed to the consumer market," the company tweeted Friday on microblogging service Twitter.
Heins has also said RIM will review all of its options, which could include its sale, but it's not RIM's priority at this time.
Shares of Research In Motion rose nearly seven per cent in trading Friday, as investors reacted to the BlackBerry maker's revised business plan. RIM's stock was up 94 cents, or seven per cent, to $14.63 on the Toronto Stock Exchange.
William Blair & Co. analyst Anil Doradla said RIM will likely "double down" on its business offerings while exiting or pursuing partnerships to address challenges in the consumer market.
"They're saying, 'Let's focus on our core strength. Let's focus on enterprise. Once we get that stability on that front, then we will start looking at the consumer side,'" said Doradla, who's based in Chicago.
RIM's stock price hit a lofty high of almost $140 per share in 2008, only to see it fall as Apple and Android smartphones made inroads and won over consumers with fun and easy-to-use software applications.
In the last couple of years even though RIM was highly profitable with strong international sales, its marketshare was eroded in the tech-savvy and lucrative North American market with consumers turning away from BlackBerrys.
The company has had weak financial results in recent quarters and a few blackeyes that have hurt its reputation.
RIM had an outage that affected its text messaging and email services worldwide for several days last fall that cost it about US$50 million in lost revenues.
The company also fired two Canadian executives who were slapped with a big fine after their drunken rowdiness forced an Air Canada flight to Beijing to be diverted to Vancouver.
Given the possibility that RIM could be sold, Finance Minister Jim Flaherty was non-commital about the government's position.
"They will be the masters of their own destiny. We would like for RIM obviously to be successful as a Canadian company, which it has been a very innovative and successful company and we hope that persists."
The change of direction for RIM came as the company posted a loss of US$125-million in the most recent quarter. RIM, which had been expected to show a profit when it reported after the markets closed on Thursday, attributed the weaker results primarily to a $355-million asset writedown, reflecting the reduced value of its business.
The loss equalled 24 cents US per share compared with a profit of US$934 million, or $1.78 per diluted share, a year ago. Excluding one-time charges, RIM reported an adjusted profit of $418 million, or 80 cents per share.
Revenue fell to $4.2 billion, from $5.6 billion a year earlier.
National Bank Financial analyst Kris Thompson said going back to its roots could be a risky move for RIM.
"Our view is that RIM is once again focusing on its enterprise roots, which is not the fastest growing market," Thompson wrote in a research note.
Also on Thursday, RIM co-founder Jim Balsillie, 52, announced his retirement. Balsillie had remained a director since losing his job as co-chief executive and co-chairman of the company in January.RIM'S BIGGEST SETBACKS OVER THE PAST YEAR
Blackberry PlayBook Flops, Prices Slashed
The PlayBook tablet, which was the BlackBerry maker's answer to the iPad, went on sale in April 2011. Since then, <a href="http://www.huffingtonpost.com/2012/01/03/blackberry-playbook-price-rim_n_1181167.html" target="_hplink">RIM has lost $485 million</a> on unsold units. At the beginning of January, <a href="http://www.huffingtonpost.com/2012/01/03/blackberry-playbook-price-rim_n_1181167.html" target="_hplink">RIM slashed the price of all models</a> of its tablet to $299. The special pricing will last until February 4. PlayBooks, which come in 16, 32 and 64 gigabyte models, typically retail for $499, $599 and $699, respectively, <a href="http://news.cnet.com/8301-1001_3-57351162-92/blackberry-playbook-price-now-$299-for-all-models/" target="_hplink">according to CNET</a>. In November, RIM temporarily <a href="http://www.huffingtonpost.com/2011/11/22/blackberry-playbook-price-drop_n_1107941.html" target="_hplink">slashed the price</a> of the 16GB version of the tablet to $199 at certain retail locations.
In October, BlackBerry <a href="http://www.huffingtonpost.com/2011/10/13/blackberry-outage-2011-rim-says-services-returning_n_1008596.html" target="_hplink">suffered an outage that affected</a> many of its then 70-million worldwide users, leaving some of its customers in Asia, Europe, Latin American and Africa without service for as many as three days. Some users in the U.S. were affected, but not for as long a period.
Drunk Execs Disrupt International Flight
In December, two RIM executives were fired after a flight they were on was forced to be diverted because the pair's "drunken rowdiness," <a href="http://www.huffingtonpost.com/2011/12/02/two-men-face-hefty-fine-a_0_n_1125214.html" target="_hplink">the AP reports</a>.
BlackBerry 10 Platform Delayed
Research in Motion announced in December 2011 that its highly anticipated BlackBerry 10 platform won't be available until the end of 2012. <a href="http://www.huffingtonpost.com/2011/12/16/blackberry-10-phones-rim_n_1153314.html" target="_hplink">According to the AP</a>, the company claims the holdup is because the chipset needed for the phones running the platform won't be available until the middle of this year.
Stock Slides In 2011
In 2011, <a href="http://www.dailyfinance.com/quote/nasdaq/research-in-motion-limited-usa/rimm" target="_hplink">RIM's stock</a> dropped <a href="http://www.huffingtonpost.com/2012/01/23/rim-ceos-jim-balsillie-mike-lazaridis_n_1222605.html#s629929&title=Lessien" target="_hplink">a massive 75 percent</a>.
Falling U.S. Market Share
In less than a year, RIM's share of the U.S. smartphone market <a href="http://www.huffingtonpost.com/2012/01/23/rim-ceos-jim-balsillie-mike-lazaridis_n_1222605.html#s629929&title=Lessien" target="_hplink">dropped by almost 50 percent</a>, from <a href="http://www.comscore.com/Press_Events/Press_Releases/2011/3/comScore_Reports_January_2011_U.S._Mobile_Subscriber_Market_Share" target="_hplink">30.4 percent</a> in January 2011 to <a href="http://www.comscore.com/Press_Events/Press_Releases/2011/12/comScore_Reports_November_2011_U.S._Mobile_Subscriber_Market_Share" target="_hplink">16.6 percent</a> in November 2011. In 2009, <a href="http://www.huffingtonpost.com/2011/12/16/blackberry-10-phones-rim_n_1153314.html" target="_hplink">RIM controlled 44 percent</a> of the US smartphone market. (Pictured above is the HTC Desire HD Android, which runs on Google's much more popular Android platform.)
Investors Urge Company Sell Itself
A nearly 75 percent drop in stock price in 2011 did not please investors. At the end of 2011, Jaguar Financial Corp, <a href="http://www.huffingtonpost.ca/2012/01/03/balsillie-lazaridis-rim-research-in-motion-jaguar-financial_n_1180885.html" target="_hplink">one of the largest investors</a> in RIM, called "for substantial corporate governance change and for a sale of RIM, whether as a whole or as separate parts." Vic Alboini, the chief executive of Jaguar Financial, <a href="http://www.bbc.co.uk/news/business-16393180" target="_hplink">told the BBC earlier this month</a> that RIM has "lost it." "The party is over, we believe, in terms of trying to design that cool, tech savvy smartphone," he said. "Microsoft has over $50 billion in cash, RIM has $1.5 billion. There is no way they'll be able to compete."
The family of 11-year-old Kian McCreath of Coventry, U.K., gave RIM some of its worst publicity in 2012, telling the media the boy was burned and left with permanent scarring when his BlackBerry Curve 9320 exploded. Although cell phones that are left to charge too long are known to explode, for RIM the news represented a horrible publicity disaster that came just weeks ahead of the launch of its BlackBerry 10.