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Just when it seemed it couldn’t get any worse for Research in Motion (RIM-T), the embattled smartphone maker released a much larger-than-expected loss, announced 5,000 more jobs cuts and delayed the launch of BlackBerry 10, considered by many to be its make-or-break product.
Analysts now say RIM’s survival depends on a sale of the company as a whole or parts as the impending launch of the next generation BlackBerry 10 (BB10) will fail to turn the company around and reignite its popularity with consumers and businesses.
Raymond James analyst Stephen Li says the possibility of a RIM comeback is disappearing fast as rivals such as Apple and Samsung deliver new offerings later this year and BB10's launch is not expected until early 2013.
“With that in mind, we believe at this point a sale is likely needed to unlock value," Li said in a note to clients.
Without a sale, Li predicts the deteriorating fundamentals will continue to erode value.
STREET LOSES FAITH IN MANAGEMENT
For some analysts the latest BB10 delay is another sign that new management, under the direction of CEO Thorsten Heins, is unaccountable.
“We are also flummoxed at the audacity shown by the current and previous management teams in guiding the market to a 2012 launch of BB10. The new CEO should have established credibility right at inception, and declared that BB10 will be available in 2013 and not in 2012, and that in order to set a culture of accountability right at the top, the Co-CEOs were being let go,” says Veritas analyst Neeraj Monga.
Monga believes the long delay in new products could spell disaster for the company.
“For any tech business to go through an entire year without a new product, essentially implies that business will not come back,” he tells BNN.
Other analysts say that even when the new phones come out, it may be too late.
“The situation is extremely dire,” Sameet Kanade, analyst at Northern Securities, tells BNN. “They haven’t been able to get the developer community behind it, they haven’t been able to get an ecosystem to support the launch -- and that’s key for any new product in this space.”
Kanade has little faith that the company will deliver on its new release date and isn’t expecting BB10 phones until the second half of 2013. And he says there is a less than 10-percent chance the new line of phones will be successful when they are launched.
WHAT IS RIM WORTH?
Many analysts now say that breaking the company into pieces is the best option for it to capitalize on its profitable enterprise service and ditch its unprofitable hardware business, which makes the phones.
T. Michael Walkley at Canaccord Genuity estimates the company to be worth around $4.25 billion -- about $2 billion for its enterprise business and $2.25 billion for its patents. Walkley also says that RIM’s current cash hoard of about $1.9 billion would be worth little to an acquirer, as it is likely to continue shrinking.
“We assign zero value to RIM’s cash in our sum of parts analysis because RIM’s core business is running at an operating loss, and we anticipate RIM’s cash balance will decline over the next several quarters,” he says. “We also believe future severance payments needed to downsize the business following an acquisition would use the majority of RIM’s cash.”
Other analysts say that while a takeover offer could help unlock value at the company, management pride may prevent that from going forward. Some insiders have pegged Microsoft as a likely partner or buyer.
“It does make some sense for Microsoft to buy this company, but I don’t think RIM wants to become an appendage of Microsoft, I think there is pride here in the BlackBerry operating system -- I don’t think they want to become a Windows player,” he says. “I just don’t see a deal getting done.”
Veritas analyst Monga predicts there’s a less than 50-percent chance that RIM will survive as a stand alone entity.
On Thursday, the company announced a $192-million loss, or 37 cents per share, for the first-quarter ended June 2. Revenue declined 33 percent to $2.81 billion. It also announced a further 5,000 job cuts -- backtracking from earlier claims made by CEO Heins on BNN that there would be no more layoffs.
Some investors and analysts ultimately think the latest figures are another sign that the company is headed for collapse.
"It's like watching a puppy die. It's terrible," said Matthew Thornton, an analyst at Avian Securities in Boston.
"Wow, what a disaster," said Edward Snyder, managing director of Charter Equity Research in San Francisco, who said RIM was now in "a handset death spiral."
"From a numbers point of view it could hardly be worse and it's going to deteriorate from here," he said.
With files from Reuters