Research in Motion May be Around for a While

By John Mylant - July 9, 2012 | Tickers: AAPL, BBRY, GOOG, NOK | 0 Comments

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With all the bad news and poor performance, analysts have all but written off Research In Motion (NASDAQ: BBRY). But there are some options brewing for the company, and it may be around longer than we anticipate. Take a look at some of the possibilities for this company in the next few years.

Challenges Continue for Research in Motion

Research in Motion will end up laying off about 5,000 employees and rolling up its sleeves, working with JPMorgan to generate $1 billion in cost cuts. This plan was already in motion when its (not so stellar) earnings came in. Losing $518 million versus a profit of $695 million in the year-ago period was disconcerting. Sales also fell from $4.91 billion to $2.81 billion, as the company expects nothing but challenges in its immediate future. Both Apple's (NASDAQ: AAPL) iPhone and Google's (NASDAQ: GOOG) Android have taken their toll on the stock.

Seemingly beginning to grasp the desperate situation in which it finds itself, the company is limiting summer vacations and ordering six-day work weeks for many of its staff based in Ottawa.

Struggling to Launch Blackberry 10

RIM has put most of its efforts (and most of its employees) on Blackberry 10 as it tries to speed up the release. But the operating system is proving more difficult than anticipated. Initially it was to be ready by this fall but the various delays have caused it to be pushed back, and the holidays will go by with no Blackberry 10. It is now not expected to launch until the first quarter of 2013, which is not good considering the holidays are a crucial sales period. But they all need to be patient. Some employees are frustrated at the delay, wondering if both RIM and Nokia have already seen better days as Apple and Samsung continue to eat away at market share. Despite this, the company needs to remain focused. The successful launch of the BlackBerry 10 platform, and the delivery of high quality, full-featured BlackBerry 10 smartphones, remains its No. 1 priority.

Hope

The Blackberry maker has strong hopes that with enough hard work the winds will change in its favor. It is not shrinking everywhere; places like India, Indonesia, and South Africa actually are growing the client base. Globally it has 78 million people in 175 countries.

Consumers Getting Interested?

Have consumers become convinced that RIM bottomed out and is getting better? Consumer perception leveled out in June as the downward trend was not perceived by consumers anymore. Here is a quick look at the company’s fall from grace:

• Early 2011, it commanded a top-end share of the smartphone market.
• January 2011 to May 2011, according to YouGov U.S. BrandIndex, smartphone users would recommend BlackBerry on an equal footing with the mobile sector.
• Then competition from Android and Apple devices eclipsed RIM’s market share.
• Gradually BlackBerry saw profits from handsets fall as prices fell.

So the company was seen by consumers as a declining smartphone product. Is the “equal footing” perception real or just a lull in the decline? With new Apple products coming out, it is not likely that consumer perception will significantly increase without some sort of change. Investors and BlackBerry fans alike are waiting for the release of the BlackBerry 10, introduced in May as a new platform with innovative apps and set to go on sale for early 2013.

Here’s Something Different to Think About

Research was upgraded from hold to buy at Hudson Square Research on Monday as it established a $10 price target. Hudson Square analyst Daniel Ernst wrote of five things that make the company appealing:

• The essential role of mobile in the future of computing
• The increasing need for communications security
• The existence of RIM's global, highly-secure mobile messaging network
• RIM's extensive carrier relationships that extend to the billing level
• RIM's 78M high-margin paying subscriber base
• A very digestible $1.6B enterprise value equating to roughly 2x EBITDA

But this upgrade was not made because the company in itself is so appealing. They believe it may be ripe for a takeover. They are not shy to remind us that significant risk remains if the company continues on as an independent. Cautiously they upgraded the company. Out of 47 research companies with ratings on Research in Motion, Hudson Square is the only one with a Buy rating or equivalent.

Nonetheless, we have a couple possibilities for the company - it is not dead yet.

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