06/17/2011 10:38 EDT | Updated 08/17/2011 05:12 EDT

RIM Stock Plunges To Lowest Level In 5 Years


THE CANADIAN PRESS -- BlackBerry maker Research In Motion's shares were hammered to their lowest level in years Friday, plunging more than 20 per cent as analysts and investors questioned RIM's ability to compete amid a slew of bad news.

On Thursday, Research In Motion (TSX:RIM) announced plans to cut jobs as it works to roll out new smartphones and updated tablets in a bid to stay competitive against mobile computing behemoth Apple (NASDAQ:AAPL) and products that run on emerging threat Google's Android platform.

The company had already cut profit forecasts for this year. The rollout of its PlayBook tablet came with little fanfare and lukewarm reviews in April, on the heels of the much-publicized launch of Apple's iPad 2 — which flew off store shelves and has remained one of the hottest tech gadgets on the global market.

RIM stock sank $7.55 or 22 per cent on the Toronto Stock Exchange, trading at $26.82 with more than nine million shares traded by mid-midmorning — making it the second-most active issue on Canada's largest market.

RIM shares haven't been below $30 on a split-adjusted basis since August 2006.

Analysts have questioned RIM's ability to stay competitive, with some putting the blame on the resources poured into developing the PlayBook as an answer to Apple's iPad and other tablet computers. Others have questioning the company's leadership.

"We do not believe RIM is accurately portraying the increasingly competitive smartphone environment," Canaccord Genuity Analyst Michael Walkley said Friday.

"In fact, we believe the focus on launching the PlayBook ahead of its core BlackBerry products is more to blame for the poor financial results than the corporate structure," Walkley said in a research note.

Analyst Anil Doradla said RIM is a "victim of the hypercompetitive smartphone industry" and the company has had to reset expectations, undermining investor confidence in the timing and competitiveness of its new products.

National Bank Financial said BlackBerry handsets sales were worse than anticipated in the company's first quarter and guidance for the current quarter and fiscal year was "very weak."

"We're lowering our estimates significantly," wrote National Bank analyst Kris Thompson.

"We believe the smartphone sector is moving into a new paradigm of lower margin pricing as Android handsets attack the high, mid and low-end market segments. We do not expect the company's gross margins to rebound."

The bank lowered its price target for RIM stock to US$25 per share and maintained its underperform rating.

"We do not expect the stock to trade on meaningful valuation metrics given the uncertainty in the company's operating model. We'd avoid this stock until there is some evidence that a sustainable turnaround is achievable," Thompson wrote.

Not all analysts were as pessimistic about RIM's stock price.

UBS Investment Research lowered its price target to US$41 per share. It said the earnings targets for the second half of the current financial year are a stretch "much of the bad news is out for the time being."

The median price for analyst estimates on Thursday, prior to the RIM's quarterly report, had been US$45 per share according to figures compiled by Thomson Reuters.

RIM has not specified how much of its workforce it will cut.

Co-CEO Jim Balsillie said RIM sold fewer phones in the United States during its fiscal first quarter due to its aging product line. The company expects to deliver smartphones with upgraded operating systems in late August and September. More powerful BlackBerrys with the same operating system as the PlayBook tablet will be out in early 2012.

In its financial results, RIM said it earned US$695 million or $1.33 per diluted share for the quarter ended May 28 on $4.91 billion in revenue. It had lowered its financial guidance for the quarter in April.

That compared with a profit of $769 million or $1.38 per diluted share a year ago on $4.24 billion in revenue.

The average analyst revenue estimate had been for a profit of $1.33 per share, according to data compiled by Thomson Reuters.

In an unusual move, co-CEO Mike Lazaridis spoke on the Thursday call, trying to assure analysts that RIM is on track with its new products.

"I truly believe we are approaching the final phase of this transition. Why we do the things the way we do may not be obvious from the outside."

It is taking longer than expected for wireless carriers around the world to test and certify the new BlackBerrys, Lazaridis told analysts.

Balsillie said he expects that RIM will see strong profit growth later in the year.

"The slowdown we saw in the first quarter is continuing into Q2, and delays in new product introductions into the very late part of August is leading to a lower than expected outlook in the second quarter," Balsillie said.

During the quarter, RIM said it shipped approximately 13.2 million BlackBerry devices and approximately 500,000 PlayBook tablets.

In its outlook for its second quarter, RIM said it expected revenue of between $4.2 billion and $4.8 billion, while earnings per share for the second quarter are expected to be between 75 cents and $1.05 per diluted share, excluding any one-time charges.

Earnings per share for the company's full 2012 financial year are expected at between $5.25 and $6 per diluted share, excluding any one-time charges or share repurchases.