August 6, 2021

Bits Blog: RIM Shares Drop, and Analysts Warn of Further Trouble

Research in Motion’s already depressed shares fell sharply on Wednesday after the company unexpectedly warned that it would probably post a loss for its first quarter, and several analysts predicted worse is yet to come.

Although RIM had stopped giving investors financial forecasts, largely because it consistently failed to meet them over the last year, it took the unusual step of issuing a statement late Tuesday saying that it might lose money in the quarter, which ends Saturday.

RIM’s shares fell 88 cents, or 7.8 percent, to $10.35.

While many analysts had said they expected that RIM, which makes the BlackBerry, might start to lose money this fiscal year, none had predicted it would do so in the first quarter. RIM reported a loss for its previous quarter but it was caused by exceptional charges. Before the announcement Tuesday, the consensus of analysts was that the company would earn 42 cents a share in the first quarter, with the most pessimistic forecast at 16 cents.

Unlike many of his colleagues, Kris Thompson of National Bank Financial did not have to lower his target price for RIM’s shares after the announcement. He has predicted since last December that it would fall to $8 a share.

He shares the growing concern that RIM’s decline may reach a stage where a new line of phones and the new BlackBerry 10 operating system — which will appear this year — will not be enough to turn the company around.

In a note to investors, Mr. Thompson compared buying RIM’s shares to “going to the casino.” He added, “If you’re feeling lucky, this stock might be worth a dice-roll under $10.”

He wrote that RIM’s announcement Tuesday that it had hired J.P. Morgan Securities and RBC Capital Markets, a unit of the Royal Bank of Canada, to conduct a strategic review was a signal that RIM was for sale.

But Ehud Gelblum of Morgan Stanley offered a different analysis in his note to investors.

“We do not believe RIMM is actively looking to sell the company despite the hiring of bankers to explore alternatives,” Mr. Gelblum wrote, using the company’s stock symbol. Instead, he wrote that it was more likely that RIM would sell only a part of itself, or turn over the operation of its unique global network, which provides corporate BlackBerrys with a high level of security, to another company under contract.

While Thorsten Heins, president and chief executive of RIM, has said it would review licensing BlackBerry software to other companies, Mr. Gelblum wrote that this might actually harm the company because it “would just invite others to beat RIM” using its own operating system.

He forecast that RIM’s shares could drop to as low as $6 or, if BlackBerry 10 is a success and the company’s business outside North America accelerates, rise to as high as $20. A year ago, RIM traded at more than $43.

Mark Sue, of RBC Capital Markets, cut his forecast for RIM’s share price to $11 from $13. He again warned that RIM’s market share could fall below 5 percent. That level “is the realm of subscale operations, razor-thin profits and decreasing odds of a turnaround,” he said.

He said RIM’s deteriorating finances could hamper the BlackBerry 10 phone introduction and accelerate the move by high-end BlackBerry users in the United States to iPhones and phones based on Google’s Android operating system.

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