RIM’s shares have dropped 72 percent since April 19, when the PlayBook first hit the U.S. market. Countering that trend, the stock has jumped at least 5 percent nine times since July on speculation a bid might come from a larger technology company, such as Microsoft Corp. (MSFT) or Samsung Electronics Co. (005930)
Yet bidders are unlikely to emerge until investors have a better sense of whether the PlayBook’s new software — which RIM is betting its future on — will be a success, said Jeff Fidacaro, an analyst with Susquehanna International Group.
“No one is going to acquire them until RIM figures out this internal transition,” said Fidacaro, who’s based in New York and rates RIM shares “negative.” “That integration hurdle is going to keep these guys on the sidelines.”
RIM bought a Canadian company called QNX Software Systems last year and is rebuilding its entire line of smartphones around QNX software. The first models are expected out in 2012.
The PlayBook was supposed to lead a fleet of sophisticated new devices that would revive Waterloo, Ontario-based RIM’s fortunes. Yet software delays and marketing missteps have left current PlayBook shipments at about 1 percent of Apple Inc. (AAPL)’s market-leading iPad.
RIM shares had dropped 74 percent this year before today, while Apple had climbed 18 percent. RIM fell 0.9 percent to $14.95 at 9:52 a.m. in New York, below its book value of $18.92 a share. That implies investors view RIM as worth less than the net value of its cash, inventories, real estate and intellectual property.
The PlayBook was criticized for lacking a dedicated e-mail program when it was introduced in April. RIM promised to fix that in a software upgrade, which it now says won’t come until February. Moreover, the company now says the first BlackBerrys using the new operating system won’t come out until they’re ready, declining to reiterate an earlier goal of the first quarter of next year.
“If you’re an acquirer, you want to see a little bit more,” said Will Stofega, an analyst at IDC in Framingham, Mass. “I don’t know what an acquisition does” at this point, he said.
Marisa Conway, a spokeswoman for RIM, declined to comment.
Writing Down the PlayBook
Co-Chief Executive Officers Mike Lazaridis and Jim Balsillie are also both co-chairmen and together own 10.5 percent of the company. While they have acknowledged investors’ frustrations on recent conference calls, they continue to emphasize the PlayBook’s promise.
The PlayBook is “a compelling tablet for consumers that also offers unique security and manageability features for the enterprise,” Lazaridis said in a Dec. 2 statement. At the same time, RIM said it would book $485 million in pretax charges to write down the value of its PlayBook inventory. The company also said it didn’t expect to meet its full-year earnings target.
That’s a problem, Fidacaro said.
“They’re in love with their own product,” he said.
Adnaan Ahmad, an analyst at Berenberg Bank in London, published an open letter to Lazaridis and Balsillie yesterday. He criticized their bullish tone in recent statements and conference calls and called on them to adopt a more realistic approach to RIM’s obstacles.
“You both need to swallow the bitter pill and come out of denial fast,” he wrote.
Ahmad urged RIM to focus on its strengths as a network services company and get out of the hardware business, joining RBC Capital Markets analyst Mike Abramsky, who first made the case for a split in July.
RIM is scheduled to report fiscal third-quarter earnings today after the close of regular trading. Analysts on average estimate that it will report a profit before some costs of $1.22 a share, on sales of $5.27 billion.
The company already said on Dec. 2 that third-quarter revenue was “slightly lower” than an earlier projection of $5.3 billion to $5.6 billion, and profit was “at the low to mid point” of its forecast of $1.20 to $1.40 a share. The company also predicted fourth-quarter phone shipments would drop from the previous period, even with the release of a handful of new phones in September and the arrival of the holiday shopping season.
RIM is losing market share to Cupertino, California-based Apple and Asian rivals Samsung and HTC Corp. (2498), which are attracting consumers with smartphones that can run tens of thousands of games, tools and other applications made by developers for those systems.
The BlackBerry’s U.S. market share sank to 9.2 percent in the third quarter from 24 percent a year earlier as consumers opted for the iPhone and smartphones that run Google Inc. (GOOG)’s Android software, according to research firm Canalys.
“The facts are pretty grim,” said Roger Entner, an independent technology analyst. “BlackBerry will have for several more years a good enterprise base, but how long will even that continue when you have Apple making major inroads?”
As Apple attacks RIM’s traditional hold on business executives and lawyers, the PlayBook has gained little ground against the iPad. RIM shipped 150,000 PlayBooks last quarter, down from 200,000 in the previous period and 500,000 in its debut quarter.
By contrast, Apple sold a record 11.1 million iPads in its most recent quarter, and Amazon.com Inc. (AMZN)’s Kindle Fire tablet — similar in size to the PlayBook — may sell 3.9 million units in its first quarter on sale, according to researcher IHS ISuppli.
Calls for Change
Jaguar Financial Corp. has called for RIM to split into separate companies, seek a buyer and shake up its management. Investors holding 8 percent of RIM shares support the effort, Toronto-based Jaguar has said.
Today’s earnings conference call, scheduled for 5 p.m. New York time, is an opportunity for Balsillie and Lazaridis to put this year’s missteps behind them and start 2012 afresh, analyst Fidacaro said.
It’s a chance for the two men not to gush about future products and instead tell investors they’re taking seriously demands to reform the company’s leadership structure and reassure them that RIM is on schedule with the PlayBook software upgrade and new smartphones, he said. Still, Fidacaro expects more of the same.
“They’re going to say ‘these are phenomenal products, they’re really competitive, just wait till you see the QNX stuff.’”
Even if Balsillie and Lazaridis do change their tone, RIM will struggle to shift course with falling sales and market share in sharp decline, said Entner, who has tracked the telecommunications industry since the late ‘80s.
“RIM is still turning, but it’s sinking,” Entner said. “Can it turn fast enough before it hits the bottom of the sea?”