Research In Motion Ltd (RIM) plunged as much as 22 per cent in late trading Thursday 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 Thursday of US$0.37 a share, excluding some items, more than five times bigger than what analysts had predicted. Sales tumbled 43 per cent to US$2.8 billion, missing a prediction of US$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 (AAPL) Inc.’s better-selling iPhone looming – RIM may have to seek a buyer now.
“They either sell, break up the company or die,” said Matt, an analyst at Avian Securities LLC in Boston who has a neutral rating on RIM. “It is just a question of when.”
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 was not the company’s goal. RIM would prefer to find a partner or license its operating system. Heins reiterated that notion Thursday, 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.
RIM shares tumbled as low as US$7.14 in late trading Thursday after closing at US$9.13. The stock had already fallen almost 95 per cent from its peak in mid-2008, cutting the business’s market value to US$4.79 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 will not arrive until the first quarter of next year, RIM said Thursday. That is more than a year later than originally planned.
“The delay increases the likelihood of a sale,” said Michael, 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 (MSFT) Corp. 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 per cent, cutting it from 16,500 to 11,500 by March, RIM said.
The company also reported a pretax writedown of US$335 million and expects to post an additional operating loss in the second quarter. The first-quarter net loss was US$518 million, or US$0.99 a share, compared with a profit of US$695 million, or US$1.33, a year earlier.
The company is trying to save US$1 billion in annual operating costs by eliminating workers and manufacturing sites. The effort so far has saved RIM US$300 million, Chief Financial Officer Brian Bidulka said on a conference call. The company’s cash investments rose to US$2.2 billion last quarter, from US$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, 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 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.”