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Analysts pour cold water on RIM's chances of survival

Posted By TelecomTV One , 08 June 2012 | 2 Comments | (0)
Tags: RIM Blackberry Curve Nortel Apple Microsoft Finance Technology patents Martyn Warwick

With awful quarterly results and details of a stonking great loss imminent, RIM's share price has lost 15 per cent of its value in less than two weeks and is now trading at its lowest level since 2003. Martyn Warwick reports.

How much longer can Research In Motion stagger on before someone puts it out of its misery? The value of shares in the Canadian manufacturer of the once invincible BlackBerry are now below the psychologically significant and dangerous $10 (Canadian) threshold. History shows us that the ten buck mark is the point at which even more frenzied selling is triggered - resulting in a further loss of confidence in high-tech companies such as RIM and giving an extra twist to the spiral to oblivion.

A senior strategist with Global Securities in Vancouver, the magnificently-monikered Elvis Picardo, observed, "You would have expected the C$10 level to have provided pretty strong support, but if it cracks through that it's really hard to say where this decline will stop".

He was right. It did and it hasn't.

Meanwhile, Don Vialoux of Horizon Investment Management said, " ... it's not looking good at... and [RIM] has given no indication of trying to bottom as of yet."

To make matters worse, James Faucette, an analyst with Pacific Crest chucked another bucket of ice cubes into the ever deepening puddle of freezing misery That RIM now calls home when he noted that telcos and other RIM sales outlets are now holding some eight weeks of BlackBerry stock - more than four times their usual levels. In other words, BlackBerrys are languishing on the shelves for far longer than they used to and unsold stocks are building up to unsustainable levels. Something will have to give - and that will be price.

In Europe, at least, customers are declining to buy expensive BlackBerry models and are opting instead for the lower-end Curve suite. Increased sales of these devices results in a fall in the average selling price of  all RIM products and so it goes, ad nauseam.

In denial for far too long under the stewardship (if that's the right word) of its erstwhile joint CEOs, Jim Balsillie and Mike Lazarides, the new-sish man in the hot seat, Thorsten Heins, has called in the bankers to look at the company's rapidly dwindling strategic options.

Mr. Heins has also introduced announced Cost Optimisation and Resource Efficiency (the so-called 'CORE') programme, which will result in spending cuts of a billion dollars by the end of financial year 2013. However more and more analysts (and worried investors) think this initiative is too little, too late.


RIM's market capitalisation, which in 2008 was at an all-time high of $84 billion has fallen to just $5 billion today, meaning that RIM's constituent parts are worth a damned-sight more than the whole company as it presently exists  - the assets strippers must be rubbing their hands in gleeful anticipation.

By market capitalisation, RIM worth $5.6 billion, meaning it’s no longer the most valuable technology company in Canada. That honour now goes to the IT company CGI with a market cap of about  $6.2 billion.

So, if it come to a fire sale, what would RIM's assets actually be worth?

Well, for starters, the company has some potentially valuable patents of it's own as well as those it bought from Nortel when that earlier bastion of Canadian enterprise imploded and collapsed into a bankruptcy, but some of the most significant and therefore the most most likely to raise the most money are actually co-owned because the Nortel patents were acquired by a consortium of buyers rather than by RIM acting on its own.

Peter Misek, and analyst at Jeffries and Company reckons that if RIM owned the Nortel patents outright they would be worth "between $3 billion and $5 billion". In reality though, they are worth "maybe $1 billion to $3 billion tops". The big question then whether or not the likes of Apple or Microsoft will be willing to pay over the odds for something they might like to own but which are probably not vital to their prospects and fortunes going forward?

RIM's other big asset is its network services business. The company owns an impressive global network over, through and across which every last bit and byte of all of the company's massive traffic is routed. RIM makes very good money from the monthly fees its customers pay to have access to that network. Rates are calculated per individual BlackBerry user and there are at least 80 million of them, each of which is worth about $4 a month. Do the arithmetic.

On top of that RIM is deeply into corporate enterprises and analysys estimate these are worth close to $3 billion.

Elsewhere, RIM is sitting on a fat pile of ready cash, but that $2.1 billion cushion is thinning daily as RIM continues to spend more than it earns.

And finally we come to manufacturing. Given the amount of unsold inventory the company holds, its dismal performance, the cost cutting and failures, the company's manufacturing arm is currently a liability rather than an asset and is losing money rather than making it.

These are the resons why it is hard to disagree with the assessment made of RIM's chances by Dexter Thillien, an analyst at IHS Global Insight. He says, "Competitors may wait for the company to go under and acquire its most compelling assets at a knock-down price, just as happened with fellow Canadian company Nortel."


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2 comments (Add Yours) - click here to sign in

(1) 08 June 2012 17:04:07 by Rick Koenig

Notwithstanding are the former BlackBerry users who have "traded in" their BB for an Android or iPhone thus creating an abundance of used BB devices further adding to the "unsold" stock pile.

(2) 09 June 2012 05:01:23 by Doug Robbins

About a year and a half ago MacDailyNews began referring to RIM as DCW – Dead Company Walking.