May 31, 2012
RIM Warns Of Loss, Faces Uncertain Future With Major Restructuring
Canada-based Research In Motion Ltd (RIM) faces a shaky future as it undergoes a major global restructuring that includes the elimination of thousands of jobs worldwide.
The company warned late Tuesday of a quarterly loss — its first in seven years — and announced it was hiring leading M&A specialists from JPMorgan and RBC Capital to “review” its strategic options.The move sparked questions about whether RIM may be looking to sell itself, although that appears to be something the company is determined to avoid.
RIM, which has 16,500 employees worldwide, also said "significant" job cuts were on the way.
Shares of RIM´s stock sank to an eight-year low of just over $10 on Wednesday following the news. That means RIM's market capitalization is now $5.5 billion, down from $84 billion at the company's peak in 2008 and just 1 percent of Apple's market capitalization. On the plus side, the company has $2 billion in cash, no debt and patents worth as much as $2.5 billion.
RIM´s suppliers also saw their stock prices plunge amid news of the Blackberry maker´s uncertain future, with Celestica's stock dropping 55 cents, or 7.1 percent, to $7.19 in afternoon trading, while shares of Jabil fell 71 cents, or 3.5 percent, to $19.35. Flextronics' stock declined 8 cents, or 1.2 percent, to $6.38.
Despite the speculation that RIM may be looking for a buyer, analysts and investors doubt that anyone is ready to acquire the entire company at this time.
"You are not going to sell RIM whole," Charter Equity analyst Edward Snyder, who has covered RIM for more than a decade, told Reuters.
"The biggest problem RIM faces is that it's a very illiquid market in suitors for its phone business."
"There's very few companies that could exploit RIM's (hardware) assets to make a go of it. Those who can are already beating the pants off RIM."
Breaking up the company for a fragmented sale is also a possibility, but an unlikely one given the complexity of such a move and the company´s aversion to even contemplate it.
A leveraged buyout could be a more likely outcome, although that would come with considerable challenges. Indeed, a number of private equity firms have tried without success to come up with ways to acquire the company.
Another option is to shut down the device business, which would be a tacit admission that the BlackBerry cannot compete with Apple and Android, and concentrate instead on secure network operations and the company´s patented technology.
But RIM´s executives, with support by the company´s board, appear set on a turnaround path to recovery that maintains its services business exclusive to BlackBerry, pinning all its hopes on its next-generation BlackBerry 10 set to launch later this year.
Once the crown jewel of Canada´s technology industry, RIM has seen its stock plunge 90 percent since its 2008 high.
The company´s downfall has been a long time in the making. It´s been five years since the iPhone was launched, and RIM still doesn't have a competitive product to sell. The Blackberry maker wasted much of that time denying the growing allure of iPhones and Android-run devices, all the while losing ground with consumers and developers. Perhaps more harmful is the loss of its sway with IT managers, a growing number of which are now allowing employees to use their own devices at work.
But for now, RIM´s strong cash cushion means the company faces no imminent danger of going bankrupt. However, shareholder pressure to unlock the company's value through a sale, rather than implement a comeback plan, may yet prevail.