Business Watch: Squeezed BlackBerry increasingly vulnerable

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Dominic White reckons the manufacturer is under pressure following disappointing financial results as speculation of a takeover intensify

Research In Motion (RIM), the BlackBerry maker, is getting squeezed from all sides.

The Canadian company’s shares took a battering after its latest results, prompting investors to question the company’s ability to perform a comeback.

The stock plunged 20 per cent on the day the figures came out, wiping £2 billion off the company’s market value.

Given how much the shares have fallen, it’s little surprise that the company is now the subject of intense takeover speculation.

A year ago RIM shares were changing hands for £30. At the last count you could buy one for just £14.50 – or the whole company for £7.6 billion.

A quick comparison with Apple’s stock market performance tells you everything you need to know.

Shares in the Californian iPhone maker have risen – in a falling market – from £180 12 months ago to £264 at the last count.

It is a phenomenal performance that has defied those who worried about the recent forced retirement of its founder Steve Jobs, due to illness.

Apple is now worth about £245 billion, or 35 times more than its Canadian rival.

Of course, direct comparisons are unfair, because Apple is a much more diverse business, selling music, iPods and computers among other things, whereas RIM remains focused on its range of smartphones and, in the wake of Apple, computer tablets.

But there is no doubt that Apple has trodden all over RIM’s patch in a way that the smaller company has failed to respond well enough to.

Five years ago BlackBerrys were growing wild and sales were soaring. Now it’s the iPhone that is the must-have device. It has gone mass-market in a way the RIM device has never quite managed.

Android threat
Google, too, has stolen a march, with phones powered by its Android software, and its surprise £8 billion takeover of Motorola makes it even more of a threat to RIM.

Google shares have had a volatile 12 months, but have still managed to rise to £280 from £248 over the period, helped by the skyrocketing popularity of Android, which recently overtook Apple’s iPhone as the number one mobile operating system.

The evidence from RIM’s results was depressing for its shareholders. The Ontario-based company reported a 47 per cent tumble in quarterly net profit to $419 million (£267 million), or 80 cents per diluted share, on sales of $4.2 billion (£2.7 billion).

Consensus analysts’ forecasts were for RIM to post earnings of 88 cents a share on sales of $4.47 billion, according to Thomson Reuters I/B/E/S.

Worse still, just three months after shocking the market with a profit warning, RIM said it now expects to reach only the lower end of the already lowered full-year outlook.

Stunned by dashed hopes of a turnaround, experts were acerbic in their criticism of the company and its co-founders, who only recently saw off an attempted shareholder rebellion.

“This report is another nail in the coffin of management,” declared Edward Snyder, an analyst at Charter Equity Research. “Even though they guided down for this quarter, they still fell short of that.”

Poor sales
RIM shipped just 10.6 million smartphones in the second quarter, as consumers fought shy of the devices in favour of higher-powered, newer smartphones from rivals.

Analysts had expected it to sell 12 million handsets and 600,000 PlayBook tablet computers, but it managed only a third of that number of tablets, which got some less than favourable reviews when launched six months ago.

Apple sold twice as many phones as that – and more than 15 times as many tablets – last quarter.

RIM’s co-CEO Mike Lazaridis (pictured) stepped in to help Jim Balsillie, his co-CEO and the one who usually talks to the investor community, to man what was a tense conference call with analysts.

Lazaradis, who founded the company in 1985, said he was confident the company can turn around its fortunes.

He expects profit and BlackBerry shipments to get a boost from souped-up, touchscreen versions of its Bold, Torch and Curve smartphones.

But many investors aren’t convinced. Some expressed a lack of confidence in the management’s ability to hit its guidance, given it had missed forecasts once again.

Then again, some think the market has overreacted and say the company is now a clear takeover target, perhaps for a private equity firm, because it generates cash and earns an annuity stream and because it takes a slice of data revenues, unlike rival handset makers.

RBC Capital Markets analyst Mike Abramsky said the company could fetch £20 billion in a takeover and sees Microsoft, Cisco, IBM and Nokia as potential suitors. Lazaridis and Balsillie each own more than five per cent of the company, so would doubtless have something to say about that.

Full article in Mobile News issue 498 (September 26, 2011).

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