* Operating loss, third straight writedown expected
* Cash balance key in distressed situation - analysts
* Adj loss per share seen at 8 cents on revenue of $3.15 bln
* RIM results due after market close on Thursday, June 28
By Alastair Sharp
TORONTO, June 25 While Research In Motion Ltd
RIM.TO focuses on the make-or-break launch of its
next-generation BlackBerrys later this year, a more immediate
question for the embattled company is whether its cash can hold
out until the new phones finally hit the market.
RIM has already told investors to expect an operating loss
when it releases fiscal first-quarter results on Thursday. With
that in mind, the focus is now squarely on whether RIM, by
reining in costs, mostly through job cuts, can buy enough time
to get its shiny new smartphones into the hands of consumers.
"All I care about is cash. This is a distressed situation so
focus should be on cash," said Matthew Thornton, an analyst at
Avian Securities in Boston.
"If they’re not cutting operating costs fast enough, then
cash can drop off very quickly, and that’s going to have
implications for the stock and the valuation," he said.
RIM has no debt and roughly $4 a share of cash and
investments, a cash pile Thorsten Heins, the company's new chief
executive, has said will increase this quarter. But bankers say
RIM could blow through that $2.1 billion very quickly trying to
right the ship.
If cash dwindles to the point where operations suffer,
analysts say RIM may have to take on debt at unfavorable terms
or issue dilutive stock at a discount to its already low price.
Such scenarios would only heighten the sense that RIM's very
survival hangs in the balance.
The stock is hovering at eight-year lows around $10, little
more than double what the company earned per share in its last
fiscal year and a fraction of the glory days near $150 in 2008.
STAKES ARE HIGH
Investors are also hoping that RIM will provide a more
specific timeline for launching the new BlackBerry 10 lineup,
still considered the company's only long-term hope for a
They also want to hear that a popular hand-set maker such as
Samsung Electronics Co Ltd (005930.KS) is looking to license RIM
That's one of the potential goals of an ongoing strategic
review being conducted for RIM by J.P. Morgan Securities LLC and
RBC Capital Markets. The bankers are assessing potential
licensing and partnership opportunities and questioning whether
RIM should be broken up or sold.
The stakes could not be higher for RIM, which in a few short
years has fallen from being the leader in smartphones to an
also-ran with uninspiring products, delayed launches, service
outages and other embarrassments.
“It’s a very tragic story. This company was a powerhouse and
they squandered it,” said Shaw Wu, an analyst at Sterne Agee in
San Francisco. "Right now it’s about staying alive, it’s about
Starmine data on RIM: link.reuters.com/teg98s
The Canadian company's troubles - and its decision to hire
bankers earlier this year - have fueled rampant takeover
speculation as its shares plumb fresh depths.
That said, RIM is not likely on Thursday to discuss a sale,
which sources close to the company have said is unlikely in the
But that hasn't stopped the speculation. The Sunday Times of
London wrote this week that RIM was looking to split its
hardware business from its messaging network business. It
pointed to Amazon.com Inc (AMZN.O) and Facebook Inc (FB.O) as
potential buyers for the hardware business, without naming any
The paper also suggested RIM could sell a stake in the
entire company to a larger company such as Microsoft Corp
But sources close to the matter have told Reuters there is
little interest in RIM's handset business and that potential
suitors are in no rush to make RIM an offer while its value
continues to slide.
In late May, RIM warned it would report an operating loss
for the first time in eight years as global BlackBerry sales hit
a wall and subscribers have dwindled in the United States.
On Thursday, RIM is expected to post an adjusted loss of 8
cents a share in the three months to June 2, according to the
average estimate of 37 analysts polled by Reuters. Revenue is
expected to come in at $3.15 billion, a 35 percent decline from
a year earlier.
It would mark the fourth time in five quarters that revenue
has tumbled, bringing it back to levels last seen three years
ago. In the last two quarters, RIM has written down the value of
inventory it is struggling to move. Another writedown is widely
The new CEO Heins has staked the company's future on
Blackberry 10. With an all-new operating system, it is designed
as RIM's answer to Apple Inc's (AAPL.O) iPhone and a range of
devices using Google Inc's (GOOG.O) Android software.
The launch is not expected until October at the
earliest. Initially, it will be a touchscreen-only gadget, while
versions with its famous physical keypad will follow, likely by
early in 2013.
It will take several more quarters before the BlackBerry 10
could be judged a success or failure, and RIM is expected to
shrink sharply in the meantime.
"They need to align their cost structure to accept the new
reality" of much lower revenue, said Sterne Agee's Wu, who
questioned whether RIM should be focusing so much on the
BlackBerry 10 launch.
RIM plans to cut costs by $1 billion by early next year, in
part by slashing its workforce for a second time in a year. It
has already cut loose one of its manufacturers as it moves to
clear out inefficiency in its supply chain and operations.
RIM has said it will cut a "significant" number of jobs,
without providing more specifics, and will soon part ways with
Celestica Inc (CLS.TO) as it consolidates manufacturing orders
with its two biggest suppliers, Jabil Circuit Inc (JBL.N) and
Flextronics International Ltd (FLEX.O).
Two sources close to RIM told Reuters last month that the
company plans to employ around 10,000 people by early next year
from 16,500 currently, with job cuts lined up across legal,
marketing, sales, operations, and human resources divisions.
But severance packages also weigh on the balance sheet. And
while RIM can trim costs and pressure retailers to settle their
accounts to improve its bottom line, it can't expand its revenue
without convincing people to buy its products, said Colin Gillis
from BGC Partners in New York.
"Can you remove expenses faster than revenue decelerates?"
Gillis said. "And is that the right thing to do? If you have a
shot with (BlackBerry) 10 maybe you burn some cash. This is not
the time to be focusing on profit.”
(Editing by Frank McGurty and Gunna Dickson)
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