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RIM hires bankers for strategic review

by Olaf de Senerpont Domis | Published May 30, 2012 at 8:11 PM

Shares of Research in Motion Ltd. slid 8% Wednesday afternoon following news that the struggling smartphone maker is set to report an operating loss and has hired investment bankers.

In an update to shareholders issued late Tuesday, RIM president and chief executive Thorsten Heins said the company hired J.P. Morgan Securities LLC and RBC Capital Markets to assist with a strategic review and "evaluate the relative merits and feasibility of various financial strategies." Those strategies could include boosting the company's BlackBerry technology through partnerships, licensing pacts or "strategic business model alternatives," Heins wrote.

Heins, who was tapped in January to replace longtime co-CEOs Jim Balsillie and Mike Lazaridis, outlined a few of the difficulties facing the Waterloo, Ontario-based company as it attempts to survive in the cutthroat smartphone market.

"Our financial performance will continue to be challenging for the next few quarters," he said. "The ongoing competitive environment is impacting our business in the form of lower volumes and highly competitive pricing dynamics in the marketplace, and we expect our Q1 results to reflect this, and likely result in an operating loss for the quarter."

Heins said that RIM will increase the $2.1 billion in cash that it had in its coffers at the end of its fiscal 2012, but that was no comfort to analysts. Sterne Agee & Leach Inc.'s Shaw Wu said that companies often can time receivables and payments to expand cash in a given period. The real worry is the revelation of an upcoming loss, he said.

"The biggest shock is that they are now losing money," Wu said. "There was always a fear the RIM would start losing money, but nobody thought it would start to happen this soon."

While the hiring of bankers makes a RIM sale more likely, Wu said he was concerned that the company could be sold for a price significantly below the $10 range that its stock was trading Wednesday. RIM's stock closed Wednesday at $10.25 per share.

There are disturbing parallels to the "take-under" of former RIM rival Palm Inc., he added. Palm was acquired by Hewlett-Packard Co. in 2010 for $1.2 billion, or about $5.72 per share. That wasn't too long after Palm's shares were trading in the $10 range.

Like Palm, which was hoping that its Web/OS operating system would provide it with a bright future, RIM is placing all its hopes on its BlackBerry 10 platform, which is set to be released by the end of this year, Wu said. That might be too far in the future.

"When you start losing money, you've got to sell within a given amount of time or you are basically bankrupt," he said. "I don't want to call this the next Palm, but it is starting to look that way."

The company is expected to issue its first-quarter financial results on June 28.

Earlier this year, RIM said its sales dropped 25% in the quarter ended March 3, compared to the year-earlier period. It also said it would write off $267 million worth of unsold units of its latest BlackBerry device and announced that it would no longer provide quantitative financial guidance. In 2011, the company's shares lost 75% of their value.

Potential RIM buyers include Amazon.com Inc., Microsoft Corp., Samsung Electronics Co. Ltd., HTC Corp. and Nokia Corp., Wu wrote in a research note. He also mentioned Facebook Inc. as a potential buyer. Reports surfaced this week that the social networking giant is planning to develop its own smartphone.

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RIM hires bankers for strategic review

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Olaf de Senerpont Domis

Bureau chief, West Coast; Editor, venture capital

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