RIM plunges
Shares of Research In Motion Ltd. are plunging in pre-market action this morning in the wake of the company's brutal first-quarter results and the decision to delay its crucial new BlackBerry 10.
RIM stock is down by about 17 per cent in pre-market moves on Nasdaq as the BlackBerry maker's stunning fall from grace continues amid heated competition from the likes of Apple Inc.'s popular iPhone and devices running Google Inc.'s Android system.
Analysts, who began slicing their price targets on the stock after the report, believe we haven't seen the end of the troubles for what was once Canada's great technology hope, the company that gave the world the smartphone. They expect more job cuts, and a sale or break-up of the company if chief executive officer Thorsten Heins can't turn it around quickly.
RIM unveiled an ugly set of numbers late yesterday, a loss of $518-million (U.S.), or 99 cents a share, and an operating loss of $643-million. Revenue sank almost 44 per cent from year-earlier levels to $2.8-billion, and shipments of BlackBerry devices fell to 7.8 million, while the number of subscribers rose to about 78 million.
Most importantly, RIM again delayed its new generation of BlackBerry devices, on which its future is pinned, with Mr. Heins saying he would "not compromise the product by delivering it before it is ready" and expressing confidence in the smartphone when it gets to market. It's now expected early next year, but Apple and other manufacturers, such as Samsung, won't be standing still.
RIM also announced that it's slashing 5,000 jobs, and that its cash levels are up to $2.2-billion.
"Layoffs are not free - there's a use of cash with that," analyst Shaw Wu of Sterne Agee in San Francisco warned in an interview with Reuters. "They have to be very careful with their cash balance. It's a matter of survival now."
Analysts are particularly bleak.
Kris Thompson of National Bank Financial said "it's not too hard" now to see RIM broken up with a value of about $8 a share.
"First it was the chip, now RIM can't handle all the code," Mr. Thompson said of the delay of the new device.
"The story keeps changing; we're not buying it. RIM is a hardware vendor, not a software vendor. While more is often better, not so much in software code!"
He expects RIM to cut deeper, saying its current levels can support a global market share, while it will be "lucky" to capture 5 per cent.
He also noted the decline in revenue from its service operation.
"We've been warning investors that this cash cow is running out of milk," he said in a research note.
"We believe this was the last quarter of subscriber growth. International consumers are going to wake up soon to avoid BB7 handsets."
Mr. Heins said he was not satisfied with the results - no surprise there, he knew what the market reaction would be - and that h is working "aggressively" in all areas of the company.
Here's a sampling of what other analysts think:
"It is becoming clearer than ever that the company needs to wave goodbye to hardware and focus more on delivering services and licensing software. 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 under-performance 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. RIM is gambling on the launch of its forthcoming BlackBerry 10 operating system to redress the situation. However, the ongoing delay in launching the platform is not going to be in the favor of the company given its current bad performance." Malik Saadi, Informa Telecoms and Media
"We had expected BB10 to finally launch in October but integration issues with RIM's NOC/node infrastructure continue to plague the company. Our checks had indicated that the recoding of the infrastructure so that it would be compatible had been completed but apparently issues have arisen in its interface with BB10. 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." Peter Misek, Jefferies
"It’s like watching a puppy die. It’s terrible," Matthew Thornton, Avian Securities, to Reuters
"Wow, what a disaster ... From a numbers point of view, it could hardly be worse, and it’s going to deteriorate from here." Edward Snyder, Charter Equity Research, to Bloomberg
"The delay increases the likelihood of a sale. Even if BB10 launched in the fall against iPhone 5, it would be very, very tough to get consumers to try it out." Michael Walkley, CanaccordGenuity, to Bloomberg
- Is RIM, a national icon, at its breaking point?
- RIM to chop 5,000 jobs, delays launch of BlackBerry 10
- Waterloo Mayor optimistic despite news of RIM cuts
- RIM, by the (ugly) numbers: Delays, cuts
Markets climb on Europe deal
Global markets are rallying today after a deal among EU leaders aimed at easing the crisis in the euro zone.
"With expectations about as depressed as they possibly could be, the agreement that emerged from the euro zone leaders’ summit in the early hours of the morning was a substantial positive surprise," said Adam Cole of RBC in London.
Tokyo's Nikkei climbed 1.5 per cent, and Hong Kong's Hang Seng 2.2 per cent. In Europe, the focus of attention, London's FTSE 100, Germany's DAX and the Paris CAC 40 were up by between 1.4 per cent and 2.6 per cent by about 7:45 a.m. ET. Dow Jones industrial average and S&P 500 futures also rose.
"Just when you’re about to lose all faith in Europe’s leaders, they finally make some progress," said Benjamin Reitzes of BMO Nesbitt Burns.
"Markets are rallying following the EU announcement," he added in a research note.
"The euro jumped more than 1 per cent, moving as high as $1.2628 from about $1.2450. The major currencies are up almost across the board, with only the yen trading about flat. As such, the U.S. dollar index is getting hammered, off about 1 per cent, which if sustained would be the biggest loss since November. Spanish and Italian yields are down sharply, with the latter’s 10-year off 26 basis points to 5.93 per cent ... Commodity prices are higher: WTI crude is up 3.2 per cent to $80.15, Brent crude is up 2.5 per cent to $93.65, gold is up $26 at $1579, base metals are stronger (Comex copper is up 2.4 per cent), while the grains are higher as well."
