RIM’s Shares Plunge After Company Reports Surprise Loss
Research In Motion Ltd. (BB), the struggling maker of the BlackBerry smartphone, fell 7.8 percent after forecasting an operating loss for the first quarter and hiring banks to advise on strategic options.
JPMorgan Chase & Co. (JPM) and RBC Capital Markets have been hired to help RIM evaluate options, including forging partnerships, licensing its software and looking at “strategic business model alternatives,” the Waterloo, Ontario-based company said yesterday in a statement. RIM also is attempting to streamline operations by reducing spending and headcount.
An exodus of customers to Apple Inc. (AAPL)’s iPhone and Google Inc. (GOOG)’s Android devices has taken a toll on RIM’s sales and profit over the past year, putting pressure on management to make changes. An operating loss would be the company’s first since 2004, according to data compiled by Bloomberg. Analysts had estimated an operating profit of $261 million for the period, which ends June 2.
“They’re trying to telegraph that expectations are too high and that the next few quarters are going to be very challenging,” said Matt Thornton, an analyst at Avian Securities in Boston.
RIM shares fell to $10.35 at the close in New York. The stock has lost 76 percent of its value in the past 12 months.
Operating profit typically excludes costs such as interest and taxes, as well as one-time items.
Chief Executive Officer Thorsten Heins, who took over from co-founders Mike Lazaridis and Jim Balsillie in January, said he’s considering strategy changes after customer and market-share losses led to five straight quarters of sales shortfalls. Bloomberg News reported April 19 that RIM was close to picking an adviser, with JPMorgan as the frontrunner.
“Bringing in a blue-chip bank at least gives you the seal of approval that you’re doing the correct due diligence and taking shareholder interest into account here,” said Thornton, who has a neutral rating on RIM’s stock.
RIM is putting the final touches on its new BlackBerry 10 operating system and will release the first smartphone built on the software later this year. If it pursues a strategic change, the company would prefer to license its BlackBerry software, a person with knowledge of the matter said last month. Barring that, RIM would like to find a strategic investor, the person said. RIM doesn’t plan to sell itself, according to the person.
Still, Kris Thompson, an analyst at National Bank Financial in Toronto, said in a note that hiring bankers means RIM is for sale. The company may struggle to attract buyers, though, said William Power, an analyst at Robert W. Baird & Co. in Houston.
“A potential buyer remains uncertain and potentially a long shot,” Power said today in a note, reiterating his “underperform” rating.
A takeover of RIM’s size would trigger a review by the Canadian government, which must determine whether an acquisition is in the national interest. Prime Minister Stephen Harper’s government in 2010 rejected Melbourne-based BHP Billiton Ltd. (BHP)’s $40 billion hostile takeover of Potash Corp. (POT) over concerns the sale would cut jobs and tax revenue.
Canadian Finance Minister Jim Flaherty told reporters today in Ottawa that RIM is an “important” Canadian company and that he hoped it would succeed with its restructuring.
For now, RIM’s market share continues to plummet. The company’s piece of the global smartphone industry fell by more than half to 6.4 percent last quarter, according to research firm IDC. Android’s share jumped to 59 percent, and Apple’s iOS operating system accounted for 23 percent.
“Our financial performance will continue to be challenging for the next few quarters,” Heins said in yesterday’s statement. “The ongoing competitive environment is impacting our business in the form of lower volumes and highly competitive pricing dynamics in the marketplace, and we expect our Q1 results to reflect this, and likely result in an operating loss for the quarter.”
RIM has previously said it aims to save $1 billion in operating costs this fiscal year by cutting its number of manufacturing sites. It also is “reviewing its organizational efficiency” across the company.
That may lead to job cuts of 2,000 to 3,000, assuming the company will try to save 30 percent of that operating cost through labor reductions, said Sameet Kanade, an analyst at Northern Securities Inc. in Toronto. The move would add to the 2,000 announced about a year ago.
RIM’s lack of clarity on the number of job reductions “makes it hard to figure out if they know or understand the magnitude of what needs to be cut,” Thornton said.
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