News Analysis
The once high-flying Canadian BlackBerry maker Research In Motion Ltd. (RIM) has few options left as the company announced a delay on its upcoming BlackBerry 10 (BB10) operating system, following another dismal quarterly results last week.
An unexpected delay to its anticipated BB10 operating system to 2013 is another body shot suffered by the Waterloo, Ontario-based smartphone maker. RIM had pinned its revival hopes on the platform, which it anticipated would be available in Q3 of 2012, by cutting costs and boosting marketing for existing models.
But its latest quarterly financial results did not meet even underwhelming expectations, suggesting that the company will be dependent on further cost cuts to sustain itself.
Forty-Three Percent Revenue Drop
RIM reported fiscal 2013 first-quarter revenues of $2.8 billion, a 43 percent decline from the same quarter in 2012, and a 33 percent decline compared with the last quarter.
Its bottom line was a loss of $518 million in the quarter. The company will engage in “a thoughtful realignment of resources and honing focus within the company on areas that have the greatest opportunities,” said CEO Thorsten Heins in a statement last week. He also announced that in addition to launching BB10 in 2013, the company is reviewing other options in enlisting advisers for a “strategic review.”
To combat the falling revenues, Heins has announced a series of cost cuts, which could save RIM $1 billion by the end of fiscal 2013, including layoffs, outsourcing of functions, and possible reduction in sales and marketing expenses.
RIM Can Hold Out
RIM should be able to hold out until BB10 arrives in early 2013, but the question is whether that would save the company, or if it would just delay the inevitable.
The company is currently sitting on a cash pile of $2.2 billion, and holds no debt.
It also has a $500 million credit facility expiring in September 2012. CFO Brian Bidulka said on a conference call with analysts that RIM is working to renew that operational lifeline. Bidulka also intimated that the company has not yet begun burning its cash reserves.
A main reason for that is RIM’s unique business model. In addition to making smartphone handsets, the company also owns a wireless network, which it uses to encrypt data sent to BlackBerry handsets.
It collects roughly $1 billion a year on subscription fees to use its network, which is a differentiator for RIM and a main reason why it is a leader among large enterprises and government organizations. Such revenues have helped offset declining sales in handsets.
Nevertheless, if the current sales drain continues, the cash burn would be an inevitability. RIM would need to conserve as much cash as possible to hold out until early 2013.
Pressure Mounting
RIM’s board recognizes that even if it can survive until BB10 arrives, there’s no guarantee that the new models would be a hit for carriers and consumers.
A Reuters report said that the board is considering several options, according to an inside source.
One is selling its high-margin network to a competitor, which could generate a one-time windfall in the billions. This wouldn’t disrupt RIM’s current operations of making and selling smartphones.
According to the report, Microsoft Corp. has approached RIM for an alliance, similar to its current deal with Nokia. RIM would ditch its own technology and run Windows Phone software on its existing handsets. In return, Microsoft would purchase a stake in the company or provide other funding sources.
The Microsoft tie-up is considered unpalatable, as it would end RIM’s own BlackBerry operating system and its technology independence.
Regardless of whether selling assets or holding out is the right answer, RIM must choose quickly.
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