RIM sized up for a sale as BB10 dream recedes
Roughly one year ago, Research In Motion Ltd. co-chief executives Mike Lazaridis and Jim Balsillie stood up at the company’s annual general meeting and told investors that the company wouldn’t be ready to transition its BlackBerry devices to a much-anticipated new platform until at least 2012.
Twelve months later, Messrs. Balsillie and Lazaridis are no longer in charge at RIM, and the first devices to run on BlackBerry 10 are still more than half a year from landing on store shelves.
Now, new chief executive Thorsten Heins will need to convince investors at this year’s AGM — coming July 10 — to have patience and believe a turnaround is still possible in Waterloo.
But after losing another 20% of its share value on Friday in the wake of the company’s shockingly deep first-quarter loss, RIM now heads toward its annual shareholders’ meeting bearing the knowledge that many of those owners believe the company is more valuable dead than alive.
As RIM’s losses deepened throughout 2011, rumours began to swirl that at least some of the company’s rivals were examining the possibility of a takeover.
Some analysts started to wonder if the company might be worth more if it was carved up and sold off, piece by piece.
Those rumours have only accelerated this year as RIM’s share price continued to fall and analysts began to speculate its executives could be considering splitting the company up for a possible sale.
Some analysts now believe the company’s market value is far lower than the sum of its parts. RIM’s market capitalization as of Friday afternoon was roughly US$3.85-billion, but the company still has US$2.2billion of cash on its books, which means its enterprise value, the real value the market assigns to the company’s operations and hard assets, is just US$1.65-billion.
Canaccord Genuity analyst Michael Walkley says RIM’s patents alone could be worth US$2.25-billion (this figure is discounted by about US$780million for the company’s share of the Nortel patent consortium, which he views as potentially difficult to sell).
He assigns zero value to its struggling hardware business but pegs its enterprise subscriber business and network operating centre architecture at US$2-billion, bringing the enterprise value of the company to US$4.25-billion. And that’s if there were a fire sale.
In a May 29 update during which he forecast the quarterly loss and job cuts, Mr. Heins said RIM had hired top investment banks JPMorgan and RBC Capital Markets to advise on “strategic alternatives.”
Mr. Heins has maintained these alternatives could possibly mean licensing RIM’s technology to competitors, selling the company whole or in parts, or splitting up its patent holdings and its hardware and services businesses.
When asked by an investor on Thursday if he was considering a possible breakup or sale of the company, Mr. Heins said only that all options remain on the table.
On Thursday, RIM reported dismal first-quarter earnings that fell short of already lowered Wall Street expectations, causing shares to nosedive after hours to levels not seen since 2003.
The company’s stock shed about one-fifth of its value on Friday alone, dropping $1.92 to close at $7.54 a share on the Toronto Stock Exchange.
In addition to announcing an adjusted net loss of US$192-million, Mr. Heins also revealed RIM would be slashing 5,000 jobs — roughly 30% of its global workforce — as part of a plan to save as much as US$1-billion in costs.
Making matters worse, Mr. Heins also revealed the first BlackBerry smartphones to be powered by RIM’s longawaited BlackBerry 10 operating system software would be delayed until the first quarter of next year.
Peter Misek, an equity analyst at Jefferies and Co., said the most important takeaway from the earnings announce-
ment was the delay, which RIM simply cannot afford.
“We think execution risks will continue as RIM plans to lay off 5,000 of its 16,500 employees by February while at the same time launching its most pivotal product in the company’s history.”
The news came as a devastating blow to RIM and the confidence of its investors. RIM’s former leadership — former co-chief executives Mike Lazaridis and Jim Balsillie — initially forecast BlackBerry 10 would be ready for early 2012, but a problem with the microchips caused RIM to delay the launch until the latter half of 2012.
By pushing the launch of its new BlackBerry devices into next year, missing the backto-school and holiday shopping seasons, RIM is at risk of falling further behind rivals Apple Inc. and Google Inc.
RIM’s aging BlackBerry lineup is suffering from dismal North American sales against Apple’s iPhone — with Apple expected to launch a new version later this year — while new devices from Android continue to chip away at RIM’s position in the marketplace.
With the announcement of this most recent delay, some analysts are beginning to wonder if BB10 will be enough to pull RIM out of its current tailspin, while others are beginning to question RIM’s ability
Delay pushes RIM behind rivals
to avoid a selloff of its assets or an outright takeover before the first new BlackBerrys arrive in stores next year.
“We do not believe BB10 devices will turn around its struggling business,” said Canaccord Genuity’s Michael Walkley.
The analyst community does not doubt the power of the operating system, said Malik Saadi, principal analyst at Informa Telecoms & Media, but BB10’s capabilities alone are not enough to right the ship.
Colin Gillis, an equity analyst with BGC Partners in New York, said he was not surprised by the further delay in the BB10 launch.
“But one of the other things is I don’t view BB10 as any type of saviour,” he said. “I don’t expect it to get much adoption. Even when it’s ready, it’s going to be another slab of glass.”
Mr. Gillis wonders why RIM — which has said the first BB10 phone will feature a touchscreen-only design while a QWERTY keyboard will come later — was not playing to its core strengths of enterprise and productivity. “It can be thin, it can be sleek and it can have apps and it doesn’t mean it’s going to sell.”
It’s unclear exactly who might buy the company at this time. “Anyone who wanted to acquire them has probably given them a good sniff,” Mr. Gillis said.