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RIM announced during an update to its fiscal Q3 guidance, that it no longer expects to meet its full year adjusted diluted earnings per share target of $5.25-6.00. RIM shares have lost more than 70% of their value this fiscal year and ended on a record low of US$16 per share last week, continuing to trade well below book value of $18.92 per share. Trading below this value means that investors consider the BlackBerry-maker to be worth less than the value of its property, patents and other assets. The company’s current market capitalisation stands at US$8.86-billion, which is down from US$80-billion three years ago and US$30-billion at the beginning of this year.
Now, more than ever, RIM is ripe for a buyout, or leadership change.
Although RIM remains profitable — its cash balance in Q3 increased by $80 million to approximately $1.5 billion –, it confirmed some disappointing news, largely related to the PlayBook. RIM said it sold just 150 000 of the devices in Q3. To give you some perspective, that’s 100 000 less than Q2, and 400 000 less than Q1 when the PlayBook was introduced. Because of the weak sales and subsequent reductions in the price of the PlayBook — as much as $300 –, RIM took a US$485 million hit related to lower inventory valuation. RIM is basically admitting that the PlayBook was an expensive experiment, and hopes to leave the negative financial impact it had behind.
Some more bad news came when RIM said that its biggest recorded BlackBerry outage that occurred in October of this year, cost it US$50-million.
On a slightly more positive note, RIM saw an increase in revenue in Q3 thanks to positive BlackBerry OS 7 sales and a total of 14.1 million handsets shipped — up from 10.6 million in Q2 –, but does not expect the growth to continue in Q4 saying:
The lower expected shipments in the fourth quarter are due to several factors including lower than expected sell-through in the third quarter and RIM’s current view of fourth quarter demand.
It’s clear OS 7 won’t be RIM’s saving grace, and by the leaked roadmap for 2012, it looks like RIM is betting the farm on BBX, with no more OS 7 devices scheduled for next year.
All of this is seemingly taking a toll on RIM employees. George Campbell, 45, and Paul Alexander Wilson, 38, pleaded guilty to mischief in Richmond Provincial Court last week, and were fined US$70 699.49 in restitution, after their their drunken rowdiness caused a 300 passenger Air Canada flight, en route from Toronto to Beijing, to be diverted to Vancouver, resulting in an 18 hour delay. It took the entire crew to subdue the men who were eventually handcuffed. They’ve since been fired.
A glimmer of hope
BlackBerry is still a massively aspirational and sought after brand with legions of loyal followers outside of the US.
In Jakarta, fans queued for 8 hours for the opening of the first BlackBerry Lifestyle store in Indonesia. The scene at the Pacific Place Mall descended into chaos when rumours started spreading that stock of the 50% discounted Bold 9790 was getting low. The promotional offer was available to the first 250 people, and the crowd of thousands became restless causing multiple minor injuries.
Veteran investor Laszlo Birinyi who picked Apple when it was trading at US$7 as a top stock for 1998, believes RIM is poised for a comeback and singled out RIMM as a top stock for 2012. Three out of the five top stocks picked by Birinyi for 2011 grew significantly. Ralph Lauren went from $US111.69 to a high of US$159.27, Priceline Incorporated went from $US399.55 to a high of $US555.65 and Hermès International went from US$156.76 to US$272 at its highest point.
Says Birinyi regarding BlackBerry:
It’s been beaten down, it’s a brand, it’s got its fans, it’s got its products. In 1997, I was in the Year in Wall Street show, and Louis Rukeyser asked me what were my picks for 1998. I said my first pick is a $7 stock — called Apple Computer (AAPL).
BlackBerry Mobile Fusion, RIM’s new mobile device management and security software, that aims to become the de facto platform for managing iOS, Android as well as BlackBerry devices in the enterprise, was well received by investors, causing RIM’s stock to spike 8.4% when it was announced.
If the BBX powered BlackBerry London is indeed real, RIM is on the right track by having a consumer focus as the company is seeing most growth in this space. The prototype looks gorgeous.
Lastly, there’s been a massive influx of new games for the PlayBook in BlackBerry App World by revered game developers such as EA and Gameloft. It’s a testament to the potential and power of QNX, the core of future BlackBerry BBX “superphones”. It’s clear that RIM now has a competitive, future-proof platform, and if big game and app developers continue to target QNX, I remain cautiously optimistic about how BBX powered BlackBerrys will be received by consumers.