RIM Shares Fall over 18 Percent in Friday Trading after Bad News Released on 1Q

By Ed Silverstein June 29, 2012

Shares of Research In Motion dropped over 18 percent in Friday morning trading following Thursday’s news that RIM saw a huge quarterly loss, more employees will see layoffs, and the BlackBerry 10 smartphone will be delayed, according to news reports.

As of 10:25 a.m., RIM shares fell $1.77 to $7.69, according to The Toronto Star.

The 1Q loss totaled $518 million, according to a company statement. The BlackBerry 10 will not be offered until the 1Q of 2013. An additional 5,000 employees will soon lose their jobs.

“At this point there is a chance that we may never see a BB10 handset given RIM’s track record,” National Bank analyst Kris Thompson predicted in a note to investors quoted by The Star.

In addition, Jefferies and Co. analyst Peter Misek, cut the “target price” for RIM to $5.

The Star also reported that Misek called the delay in the release of the BlackBerry 10 “catastrophic.” “It was all their hopes and dreams, and now they’re going to miss Christmas. An absolute catastrophe,” Misek told The Star.

In fact, RIM’s market share for smart phones could soon drop to under 5 percent, The Star reports citing analysts.

A further dose of reality came from analyst Shaw Wu of Sterne Agee. “The company seems to be betting everything on BB10 and assuming that it will be an instant hit. It might not be. Even if it’s well executed and a good system, consumers just might not like it,” Wu told The Star. “It’s not about BB10 any more. It’s about survival.”

In addition, Malik Saadi, an analyst at Informa Telecoms & Media, said RIM’s 1Q results show that revenues declined for the fourth consecutive quarter to reach US$ 2.8 billion, or a 33 percent decline compared to the prior quarter.

“The company reported its first quarterly operating loss in more than seven years with a net loss of 18.5 percent,” he adds.

On the other hand, he noted that “not all parts of its business are performing badly. The company made an honorable profit from its services but it has made a dramatic loss from its hardware. This is due to the decline of both volume shipments and the average selling price of BlackBerry smartphones. The company managed to ship only 7.8 million smartphones this quarter compared to 10.7 million recorded last quarter. The average selling price of BlackBerry smartphones declined to US$218 from US$258 recorded last quarter.”

“It is becoming clearer than ever that the company needs to wave goodbye to hardware and focus more on delivering services and licensing software,” Saadi said. “This quarter's results have effectively confirmed that RIM can no longer afford to be a wholly vertical company with a fully integrated business model. From now on, any underperformance by the devices part of the organization would mean a significant churn of current BlackBerry users, which could lead to the collapse of the whole business including services.”

In addition, Saadi cautioned that the release of BlackBerry 10 “is not enough to help the company redress the situation. Bear in mind that 100 percent of the 78 million current BlackBerry users are still using legacy devices, so upgrading all these users to BB10 will not happen overnight and RIM might well lose a great number of these users in the process.”

He also suggests RIM license BlackBerry 10 to other device vendors and extend BlackBerry services to more than its own devices.

“This will enable RIM to target a wider audience and unlock new market opportunities in both the consumer and the enterprise segments, allowing the company to reinvigorate its position as a leader in delivering a premium customer experience and reliable and secure messaging services,” Saadi said.

As of June, RIM saw some 78 million subscribers globally, according to a report from TechZone360.

Edited by Rich Steeves

TechZone360 Contributor

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