RIM Keeps On Keeping On Despite Dire Outlook for BlackBerry

The headline on Forbes.com today says it all: "Should Research in Motion Sell BlackBerry and Call It Quits?"

Even as the company celebrated separate developments today — the right to use the BBM brand in its homeland of Canada and the opening of its first innovation zone in India — the once-darling of the mobile world is teetering on the edge of defeat with a dire profit warning and a looming writedown on unsold stock.

RIM CEO Thorsten Heins’ recent update confirmed the company is expecting an operating loss for Q2 of $125m, while revenue plunged 25% from the year-ago quarter. The message suggests this quarter will be even worse with "challenging" conditions for the next few quarters. "The on-going competitive environment” impacting RIM, "in the form of lower volumes and highly competitive pricing dynamics in the marketplace," has led to the losses.

Now RIM has engaged JP Morgan Securities and RBC Capital Markets for a strategic review of the business to see which parts are most saleable. The company also plans to cut headcount, from 16,500 to 10,000, but will be hiring in "key areas," such as the BlackBerry10 team, and an upcoming operating system revamp.

“Quite simply RIM has failed to make devices — either BlackBerries or PlayBooks — that enough people want to buy. Apple and Android are both surging ahead in terms of sales and market share," writes Computer Business Review (RIM's stockpile of unsold BlackBerry phones and PlayBook tablets grew 18% in the last quarter, while its inventory of unsold goods could total over $1bn in value). "The business space, always RIM's stronghold, has also turned its back on the Canadian firm, with many believing Apple's iPhone presents a viable alternative in the workplace.” 

"I don't see the tide turning," Peter Misek, analyst at Jefferies & Co. told Reuters. "The problem is the BlackBerry 10 handsets aren't coming out next quarter, so you know next quarter is going to most likely be worse. Then you look at the November quarter, when we'll probably get the BB10 handsets and at the same time we'll have the iPhone 5. So that quarter is probably going to be bad."

On Wednesday the company’s stock hit its lowest level since 2003, and RIM's shares have lost about 80% of their value over the last year, but Heins remains defiant. Joining RIM four years ago, Heins was COO before replacing co-CEOs Balsillie and Mike Lazaridis in January.

As Heins told the Associated Press earlier this month, “My charter from the board of directors is very clear: long-term value creation with RIM. We are prudent because we know the situation is somewhat challenging. So we are just looking at everything that could be an option. That doesn’t mean we are pulling on those options. But we need to understand ... what is our field of action that we could take in case we need to?”

Michael Walkley of Canaccord Genuity says the company’s largest value is monthly fees from phone companies that deliver email and Web pages to 78 million BlackBerrys, a business worth about $2.75 billion to a competitor.

The other major component of value is RIM’s patent portfolio which could reach $4 billion if a bidding war develops between Apple, Google, Microsoft Corp. and perhaps Samsung Electronics Co. according to Christopher Marlett, CEO of MDB Capital.

Despite a sizeable cash cushion, pressure will rise from stockholders to sell as shares decline. “It’s a business model that’s badly broken, but it’s got assets that are worth something to somebody,” said David Baskin, president of Toronto-based Baskin Financial Services Inc.  “You don’t hire a banker unless you’re considering a sale.”

Tech blogger Shelley Palmer wrote the BlackBerry is dead partly because it’s incompatible with Google apps. “I very rarely call the 'time of death' of a company. It’s really not my place.  But, after my customer service experience with RIM the other day, I think it’s safe to say that BlackBerry has passed on! It's so sad to see a once-great product die such a slow, agonising death. But it's truly over. There is nothing, short of reinventing BlackBerrys, that can save RIM."