RIM Stock On Watch After Company Admits Change Is Needed After Earnings Miss

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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.

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