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Research In Motion Ltd. (RIMM)’s short interest has touched a record high, a sign investors are anticipating disappointing earnings as the wait for a new lineup of BlackBerry smartphones takes as long as six months.
Short interest (RIMM) rose to 4.2 percent of shares outstanding on Aug. 24, according to data compiled by research firm Markit. Investors taking short positions bet against a stock by borrowing shares and selling them, aiming to profit by repaying the borrowed shares at a lower price.
RIM last quarter posted its first operating loss since fiscal 2004 as it struggles with slumping demand for an aging lineup of BlackBerry models. Shares of RIM, which reports quarterly results Sept. 27, have fallen 15 of the past 16 trading sessions.
“People are anticipating the quarter being a pretty lousy one and probably more writedowns,” said Eric Jackson, president of Ironfire Capital LLC, which has shorted RIM in the past. He currently doesn’t have any position in the stock.
RIM fell 0.7 percent to $6.65 today in New York, reaching a year-to-date decline (RIMM) of 54 percent. Last quarter’s results included a pretax charge of $335 million to write down the value of goodwill. That followed a $485 million writedown three months earlier.
While the faithful among the 78 million BlackBerry subscribers may be holding out for new BlackBerry 10 models due in the first quarter of next year, others have given up waiting and opted for sleeker touchscreen models from Samsung Electronics Co. (005930) and Apple Inc. (AAPL)
Revenue last quarter fell 43 percent as international markets that had held up better than the U.S. also began to suffer slowing growth. For the quarter ended Aug. 31, the Waterloo, Ontario-based company is expected to report a loss of 44 cents a share and a 40 percent drop in sales from a year earlier to $2.48 billion, according to the average of analysts’ estimates compiled by Bloomberg. Analysts project (RIMM) operating losses for the next three quarters.
RIM is counting on the new phones, the first built on an operating system that the company says will offer “true multitasking” capability that rivals can’t match, to help it claw back lost market share. Its portion of the global smartphone market fell to 4.8 percent in the second quarter from 12 percent a year earlier as Google Inc. (GOOG)’s Android platform climbed to 68 percent and Apple slipped to 17 percent, according to research firm IDC.
RIM’s short-interest ratio currently stands at 4.1 percent, just off the 4.2 percent record high. Apple’s is 0.4 percent, and Google’s is 0.7 percent, according to London-based Markit.
“We are expecting the next several quarters to be very challenging,” Chief Executive Officer Thorsten Heins said in June. RIM doesn’t have a comment on the short interest, said Nick Manning, a company spokesman.
RIM demonstrated two new BB10 models to developers and the press in August to build enthusiasm ahead of their debut. While Chief Marketing Officer Frank Boulben said in July that the phones may be released as soon as January in some markets, the company has since said that the debut may come as late as the end of March.
Either way, that will be after the unveiling tomorrow of Nokia Oyj (NOK1V) phones on Microsoft Corp. (MSFT)’s new Windows Phone 8 platform and the introduction of Apple’s newest iPhone, which two people with knowledge of the plan said will happen on Sept. 12.
The timing of the BB10 debut means RIM will also miss out on a competitive opportunity if U.S. sales of some Samsung Electronics Co. handsets are banned. U.S. District Judge Lucy Koh is weighing whether to block some Samsung phone sales after Apple’s victory in a $1.05 billion jury verdict Aug. 24.
RIM is also under pressure to get the phones out quickly as operating losses from its devices business eat into its cash reserves. While RIM had $2.2 billion in cash, including long- term investments, at the end of last quarter, Chief Financial Officer Brian Bidulka has warned that number could drop if the company has to further restructure.
“If we see a big hemorrhage of cash this quarter and we are still expecting one or two really dire quarters of results in front of us, once RIM gets below $1 billion in cash, certainly life becomes much more difficult for the company,” said Ironfire’s Jackson. Unless a BB10 device ships soon, “it’s going to be very difficult for RIM in the short term,” he said.
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