Any Hope Left For RIM?
Keki is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Just when you thought things couldn’t get any worse for Research In Motion (NASDAQ: BBRY), they just did. The company, famous for its BlackBerry phones, is being compelled by mobile carriers to reduce subscriber access fees.
RIM receives a fee from wireless carriers and in return gives their subscribers access to the company’s BlackBerry servers.
So why are carriers demanding a fee cut?
Squeezed from both sides
Last year, AT&T saw its total net income decline drastically by a whopping 80%, to just $3.9 billion from 2010’s figure. What makes things even worse is the fact that it has a monstrous $65 billion in debt to service, whether or not it makes profits.
On the other hand, Verizon’s annual net income for 2011 stood at $2.4 billion, half of what it was back in 2009 and like AT&T, its balance sheet too has a significant $51.6 billion debt.
So understandably, it becomes difficult for these wireless operators to appease penny pinching consumers. That’s why RIM is being asked to bear some of the burden, albeit at the worst possible time. Besides, RIM is the only smartphone maker to charge such a fee. And given that BlackBerry devices are witnessing declining popularity, the company may not be in a very favorable position to bargain too much.
So what’s next for the ailing smartphone maker?
A Death Spiral?
The CEO of RIM, Thorsten Heins, claims that his company is not in a “Death Spiral.” But sadly, most people, including me, find it increasingly difficult to subscribe to Mr. Heins' views. RIM’s efforts to catch up with the smartphone revolution have been woefully inadequate. And now that RIM is incurring losses and losing customers even in emerging markets, the company is hoping that its “knight in shining armor” – the BlackBerry 10 -- would straighten things out.
Research Still in Motion
Again unfortunately, the “knight” seems to be held up in traffic. RIM announced earlier that the release of the BB 10 would be pushed from later this year to the first quarter of 2013. The excuse? RIM wants to make sure that its new products are perfect. But this is quite literally a question of life and death for RIM. There is little to no margin for error here.
The company’s hardware division is burning cash at a very dangerous pace. We saw RIM post a 42% year-over-year freefall in its latest first quarter revenue, and an even wider than expected loss of about $518 million. At this rate of cash burn, RIM’s $1.4 billion in cash and equivalents could most probably run out by March 2013. RIM makes about a third of its revenue from the services division. With carriers bargaining for a lower fee, the company could run out of cash even sooner than that.
But will the BB10 Save RIM?
The company claims that it would release two main types of BB10 devices. Its L-Series would have a large 4.2-inch screen without a physical keyboard, and its N-Series would have a smaller 3.1-inch screen, but with a traditional QWERTY keyboard. Not exactly ground breaking in the features department, but it will be interesting to see how well these devices sell once they're released. (That’s if RIM still exists by that time)
Other players are also set to release new smartphones this year. Most notably Apple (NASDAQ: AAPL), which will be releasing its all new iPhone 5 which should get a great reception from consumers. The smartphone is rumored to have a larger 4-inch screen with 4G LTE capabilities.
According to reports, even Amazon (NASDAQ: AMZN), whose Kindle Fire tablet sales have been declining, is planning to jump into the bandwagon with its own smartphone.
So by the time RIM’s new BB10-based phones are released, they could have little impact on consumers who have already been bombarded with other, possibly superior offerings.
The Bottom Line
According to me, RIM is nothing but a gamble right now. Buying into the stock can be the equivalent of catching a falling knife. There is a very real possibility of RIM running out of cash before the BB10 gets released. And even if the new smartphone does make it on time, there are no guarantees for success. I’d rather stay on the sidelines and watch this ship sink.
So what are your views on RIM’s future? Feel free to express yourself in the comments section below.
kekidf has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.