RIM’s Plunge Adds Pressure to ‘Sell, Break Up or Die’
Research In Motion Ltd. (RIM) plunged 19 percent, the biggest decline in more than a year, after posting a loss and delaying the next BlackBerry operating system, increasing pressure on the company to find an acquirer.
RIM reported a first-quarter loss yesterday of 37 cents a share, excluding some items, more than five times bigger than what analysts had predicted. Sales tumbled 43 percent to $2.8 billion, missing a prediction of $3.05 billion, and the company said it would cut 5,000 jobs.
The Waterloo, Ontario-based smartphone maker had been waiting for a release of the BlackBerry 10 in the fall to decide on its strategic options, betting that the success of the product would let it avoid a sale, according to two people familiar with the situation. With no new lineup this year -- and the next version of Apple Inc. (AAPL)’s better-selling iPhone looming -- RIM may have to seek a buyer now.
Chief Executive Officer Thorsten Heins said in May that RIM had hired JPMorgan Chase & Co. (JPM) and RBC Capital Markets to help evaluate its strategic options, though he said a sale wasn’t the company’s goal. RIM would prefer to find a partner or license its operating system. Heins reiterated that notion yesterday, saying he was “convinced” that RIM has a future as a maker of hardware and software.
RIM declined to comment on takeover speculation.
“RIM will comment on any detail from its strategic review when it’s ready,” said Heidi Davidson, a company spokeswoman.
The stock fell to $7.39 at the close in New York. The shares have now lost 95 percent of their value since peaking in mid-2008, cutting the business’s market value to $3.9 billion.
The company has struggled to keep pace with Apple’s iPhone and devices based on Google Inc. (GOOG)’s Android platform, spurring customers to flee the BlackBerry platform. The new BB10 software -- the linchpin of its comeback plan -- now won’t arrive until the first quarter of next year, RIM said yesterday. That’s more than a year later than originally planned.
“The delay increases the likelihood of a sale,” said Michael Walkley, an analyst at Canaccord Genuity Inc. in Minneapolis. “Even if BB10 launched in the fall against iPhone 5, it would be very, very tough to get consumers to try it out.”
Some investors were already pushing RIM to put itself on the block before the latest results.
“We would like to see a sale of the company or a breakup, and if a breakup, the sale of each of the parts,” Vic Alboini, chairman of the Toronto-based investment firm Jaguar Financial Corp. (JFC), said last month. He sees Microsoft Corp. (MSFT) or International Business Machines Corp. as potential buyers.
“We’re pushing and cajoling RIM to get to the promised land of a sale or breakup,” he said.
The job cuts will shrink RIM’s workforce by about 30 percent, cutting it from 16,500 to 11,500 by March, RIM said.
The company also reported a pretax writedown of $335 million and expects to post an additional operating loss in the second quarter. The first-quarter net loss was $518 million, or 99 cents a share, compared with a profit of $695 million, or $1.33, a year earlier.
The company is trying to save $1 billion in annual operating costs by eliminating workers and manufacturing sites. The effort so far has saved RIM $300 million, Chief Financial Officer Brian Bidulka said yesterday on a conference call. The company’s cash investments rose to $2.2 billion last quarter, from $2.1 billion in the previous three months.
Still, future operating losses and severance payments will force RIM to burn through much of that money, said Walkley, who has a hold rating on the shares.
The situation may come to a head in the coming months, said Brian Blair, an analyst at Wedge Partners Corp. in New York.
“My view is that things get so bad this year and in early 2013 that they get forced into a sale,” he said. “It gets worse and worse for the next six months, guaranteed.”
RIM can’t expect any assistance from the Canadian government, Jim Flaherty, the country’s finance minister, told reporters today on a conference call.
Choosing a Path
“They need to look at their own options and to choose their path,” Flaherty said. He said he’s not aware of any interest from other companies in acquiring RIM.
A takeover of RIM’s size would trigger a review to determine whether an acquisition is in the national interest. In 2010, Prime Minister Stephen Harper’s government rejected Melbourne-based BHP Billiton Ltd. (BHP)’s $40 billion hostile takeover of Potash Corp. of Saskatchewan Inc. over concerns that the sale would cut jobs and tax revenue.
RIM had previously said that the first of the new BlackBerry 10 phones would come out in the latter part of this year, and the product was originally expected in the first quarter of 2012. Pushing BlackBerry 10 to 2013 means the phones may come out months later than the iPhone 5 and products built on Microsoft’s Windows 8 platform.
In the meantime, sales of the existing lineup are slumping. RIM shipped 7.8 million BlackBerrys and 260,000 PlayBook tablets in its last fiscal quarter, which ended June 2. A year earlier, it shipped 13.2 million BlackBerrys and 500,000 PlayBooks.
“The delay may just be the final nail in the coffin,” said Sameet Kanade, an analyst at Northern Securities in Toronto who has a sell rating on the stock. “This is not just a disappointing quarter, but is a big question mark about the company going forward.”
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