TORONTO (Reuters) – A candid diagnosis of the troubles facing Research In Motion delivered by freshman Chief Executive Thorsten Heins was a welcome change for its stakeholders, but his prescription for returning the BlackBerry maker to health might be hard to swallow.
RIM recorded its first quarterly loss in seven years on Thursday and said it would no longer issue financial forecasts. A prolonged slump in sales of its smartphones shows no signs of abating, it said, at least until it can launch its next-generation line-up later this year.
Heins, saying RIM could not be “all things to all people,” laid out a broad plan to bring in partners to help RIM plug the BlackBerry’s weaknesses in consumer features such as music and video. RIM will also seek deals to license its software and highly secure network to other providers. He even said he might consider selling the company – once the pride of Canada – if the review pointed in that direction.
Still, investors seemed cheered by the straight talk, pushing its battered shares up almost 8 percent on Friday. That gave the stock some breathing room from its lowest in about eight years. It had dropped nearly 80 percent since February 2011.
For now, talk of a sale is premature. RIM has avoided any discussions with potential suitors since a management and board shuffle in January put Heins in charge, two sources with knowledge of the matter said.
The board, and in particular its newest member, value investor Prem Watsa, preferred to give Heins some time to turn things around, according to the source, who spoke on condition of anonymity because the discussion were private. “Prem Watsa is really very influential there now,” the source said. “They want to give (Heins) the opportunity to keep his head down and focus on the business.”
Watsa, known for big bets on what he considers downtrodden stocks, joined RIM’s board in January after building a stake he has since doubled, making his Fairfax Financial Holdings the second-largest RIM investor behind Primecap Management Co.
But BlackBerry 10 hardware won’t arrive until late in the year if RIM sticks to its schedule, and the competitive threats Heins alluded to in his Thursday conference call will likely have accelerated by then, leaving RIM further behind.
Ambitious handset makers such as HTC and Huawei may have an interest in licensing BlackBerry software to enhance their credentials for providing secure email to businesses and government agencies, said Neil Mawston from Strategy Analytics. But he sees only a limited appetite for striking a partnership with the struggling brand.
Given RIM’s history of lagging the industry on getting the latest hardware specifications into its devices, outsourcing RIM’s manufacturing to a fast mover such as Samsung would make sense, analysts say.
Such a move would result in a wholesale shrinking of RIM’s workforce and cut out roughly 80 percent of its revenues, though it would also discard its most costly activities and drive its asking price down to a more attractive level.
Finally, RIM could offer up use of its proprietary network which compresses and encrypts data sent from its BlackBerry devices, useful in emerging economies where bandwidth is limited. But RIM may put too high a price on what it sees as its crown jewel.
In the meantime, RIM is likely to have a tough time selling existing products. The company took a $267 million charge to write down the value of its BlackBerry 7 devices, which only launched in August. That suggests RIM has already started selling them below the cost of production or plans to do so.
Even with the smartphone market in the middle of a boom, RIM’s volumes over the next year could actually drop 25 percent, Credit Suisse says. Existing devices are not competitive and RIM’s share in global markets is rapidly eroding.
In the lower end of the smartphone market, improved Nokia devices could cut into RIM’s share in the international markets, said Credit Suisse, which is keeping a “neutral” rating on the stock only because of the potential for a sale of the company.
Any talk of a sale also has to take account of the opinion of Canada’s federal government, which can block any major takeover of a Canadian company if it decides the deal would not produce a loosely defined “net benefit” to the country.
“It is clear that the company is in survival mode,” said Charter Equity analyst Ed Snyder, who has long tracked RIM and watched other once-leading companies such as Nokia, Motorola and Palm flail during turnaround efforts. “RIM is in a dire state of affairs.”
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