RIM Battles for Survival
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Unless a tech investor has been asleep for the past year, he or she is surely aware of the troubles facing former tech darling, Research in Motion (NASDAQ: BBRY). Yet some still missed the point of my last article about the company. That point was that its business was and is still deteriorating faster than even the most pessimistic Wall Street analysts think.
The most recent proof was RIM's warning this past Tuesday that it will suffer an operating loss in the current quarter ending June 2. And Nomura forecasts that the company will suffer operating losses at least until the end of the 2014 fiscal year. In addition, the latest figures from the company suggest that sales of its flagship Blackberry phone may be peaking, especially in the United States. If so, the $1.1 billion in fees RIM gets from network operators will shrink markedly. Just an added reason why RIM investors have lost another third of their money since I wrote the article.
On the positive side, the company does have nearly $2.5 billion in cash on its balance sheet. So it will not run out of money any time soon, although it is estimated RIM will burn through roughly $500 million by the end of 2012.
The new management at Research in Motion does have the choice of several paths down which to take the company. The first is an outright sale of the company. The problem here is that some of the deep-pocketed players in the industry – Microsoft (NASDAQ: MSFT) and Google (NASDAQ: GOOG) have already opted to sink major money into two of RIM's competitors, Nokia ADR (NYSE: NOK) and Motorola respectively. So that option may not be open, though private equity firms remain a possibility (think Skype before it was sold to Microsoft).
Another option that management is surely looking at is obtaining partners to supply content for and perhaps even licensing the company's popular BlackBerry Messenger service or even its Blackberry 10 operating system. But it is doubtful enough money would be raised to completely turn the company's fortunes around.
After all, the best case scenario is that RIM's operating system fights for third place with Microsoft, behind Google's Android operating system and iOS from Apple (NASDAQ: AAPL). Nokia's CEO Stephen Elop recently said “We've moved from a battle of devices to a war of ecosystems”. Translation: mobile phone makers need developers keen to create applications for their operating systems. Think of how much of Apple's success with the iPhone is due to this.
So that leaves RIM's management and stockholders with one last option: hope. The company created a winning product before – Blackberry – before. Perhaps it can do so again. But the window of opportunity is closing for Research in Motion.
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