Research In Motion Ltd. (RIM)’s forecast for a first-quarter operating loss tomorrow, its first since 2004, is generating speculation that failure to deliver a best- selling phone will create losses the rest of the year.
While 31 analysts on average project an operating profit of $105 million for the fiscal year ending next March, 14 predict a loss, according to estimates (RIMM:US) compiled by Bloomberg. RIM’s first- quarter operating loss may total $36.3 million, based on the estimates.
RIM is grappling with an exodus of smartphone customers to Apple Inc.’s (AAPL:US) iPhone and Google Inc.’s (GOOG:US) Android, following product delays. Customers have grown tired of waiting for the next- generation BlackBerry 10 lineup, for which Waterloo, Ontario- based RIM has yet to announce a release date. A full-year loss would be a reversal for a company that earned an operating profit of $4.6 billion in fiscal 2011.
“They’re way too far behind to catch up,” said Scott Sutherland, an analyst with Wedbush Securities in San Francisco. He has the equivalent of a hold rating on RIM and estimates the company will have an operating loss of $55 million this year. “BB10 will buy them some time, but long term unless they change their strategy, I think they are in a decline.”
Compounding RIM’s gloomy prospects for this year, the new phones will probably miss the back-to-school season, making it “likely too late and fraught with risks,” Ehud Gelblum, an analyst at Morgan Stanley in New York, said in a note to investors this week.
RIM has only said that the first BB10 phone will come in the “latter” part of this year. Heidi Davidson, a spokeswoman for RIM, declined to comment on the full-year outlook, citing the company’s quiet period before results.
RIM said last month that it hired JPMorgan Chase & Co. (JPM:US) and RBC Capital Markets to help it evaluate options, including forging partnerships, licensing its software and looking at “strategic business model alternatives.”
“We expect fundamentals to worsen at RIM for at least the next two to three years before reaching bottom,” said Gelblum, who cut his rating on the stock to the equivalent of a sell. “The only way RIM remains a viable entity is at a fraction of its current size, a transformation that erases much of its earnings power.”
The company is already a shadow of its former self, having fallen almost 95 percent from its stock (RIMM:US) market peak in mid-2008. The stock has dropped 67 percent in the past 12 months alone, cutting RIM’s market value to $4.8 billion. The shares climbed 2.4 percent to $9.18 at the close in New York.
The best news investors could hope for tomorrow is a firm date for the release of the first BB10 phone, said Matt Thornton, an analyst at Avian Securities LLC. RIM is more likely to give details on how many jobs it will cut as it works toward saving a targeted $1 billion in operating costs this year, he said.
Alkesh Shah, an analyst at Evercore Partners Inc. (EVR:US) agrees, in part because RIM is mindful of past delays and blown promises.
“They do want to make sure the product is completely formed and they don’t want to set the expectation of a date and have it slip because they’ve had so many execution challenges over the last two years,” said Shah, who rates RIM the equivalent of a hold.
BlackBerry founder and former co-Chief Executive Officer Mike Lazaridis in December pushed back BB10’s release initially set for early 2012 to the current guidance for late this year, blaming the delay in part on a shortage of microchips. That was just the latest gaffe for RIM, which was synonymous with cutting-edge technology when the BlackBerry debuted more than a decade ago.
Since then, the BlackBerry’s aging Web browser and shortage of applications has driven consumers into the arms of competitors led by Apple, which introduced the iPhone in mid- 2007. RIM’s first foray into touch-screen devices with the BlackBerry Storm in late 2008 was panned by critics as a device that appeared to have been rushed to market with software flaws.
The BlackBerry PlayBook tablet released last April was given good reviews for its hardware but again blasted for lacking key features: built-in e-mail, calendar or contacts programs. Sales reflected the poor reviews. RIM in its last quarter said it sold more than 500,000 PlayBooks to Apple’s 11.8 million iPads.
RIM probably sold 300,000 PlayBooks and 7.4 million BlackBerrys last quarter, Morgan Stanley (MS:US)’s Gelblum predicted. That compares with 11.1 smartphones sold in the previous quarter.
RIM is expected to have a loss excluding charges for writedowns, job cuts or other expenses of 7 cents a share and sales of $3.04 billion, according to a Bloomberg survey of analysts.
An autumn release for BB10 will likely also put it up against Apple’s iPhone 5, and new devices built on Microsoft Corp. (MSFT:US)’s Windows 8 platform. Given the dominance of Apple’s iOS and Android, and the resurgence of Windows as a mobile-phone competitor, the best RIM can hope for is that it will be the world’s fourth mobile platform, said Evercore’s Shah.
“The question is, do you need four ecosystems?” said Shah. “If they’re not going to embrace Windows or something like that and be part of another ecosystem, they’re going to be a much, much smaller company three years from now.”
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