"We believe 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," said Morgan Stanley. "The next nine months will likely see rapidly deteriorating fundamentals on the one hand offset by stories of potential strategic options on the other."
RIM hired RBC Capital and J.P. Morgan in May to help the firm figure out what its next steps should be. Rumors of those steps have been rampant.
Over the weekend, The Sunday Times reported that RIM was seriously considering a split, selling off portions of the business. It suggested that Amazon or even Facebook might purchase RIM's handset business, with RIM itself maintaining ownership of its messaging platform. Another scenario depicts RIM keeping its handset division and licensing out its messaging services in hopes of generating revenue. Yet another scenario suggested that RIM would remain intact but sell a majority stake of the company to a larger market player such as Microsoft.
[ For more on RIM's recent woes, see RIM Confirms New Layoffs. ]
RIM responded to the Times' story with a statement today that stopped short of denying the report altogether.
"RIM has hired advisers to help the Company examine ways to leverage the BlackBerry platform through partnerships, licensing opportunities, and strategic business model alternatives," it said. "As Thorsten said on the Company’s fourth-quarter earnings call, 'We believe the best way to drive value for our stakeholders is to execute on our plan to turn the company around.' This remains true."
The classic non-denial denial.
With its stock price so low, RIM is in real danger of becoming a takeover or acquisition target. Mobile device and/or platform firms looking to scoop up RIM's extensive patent portfolio could do so fairly cheaply if those entities were to purchase RIM outright.
It's hard to see why any company would want to own RIM's handset making business, which recently lost an ODM partner in Celestica. In a statement released last week, Celestica said that the transition away from RIM's products will take three to six months to complete, and it expects to take a restructuring charge of less than $35 million.
According to Morgan Stanley, RIM's biggest problem is that it won't be able to get BB10 to market in time to ward off competitors. Apple will release iOS 6 and the iPhone 5; Google will release Android 4.1 Jelly Bean and new hardware; and Microsoft will release Windows Phone 8 and hew hardware all before RIM gets BB10 to market. If BB10 is late, or, worse, if it fails to compete, then there won't be much left to save RIM.
"We believe the fundamental story at RIM is essentially broken," wrote Morgan Stanley. "In this volatile cocktail of a situation, and in light of our experience with Motorola prior to its strategic split 18 months ago, we are more comfortable rating the stock Underweight as after all the inevitable ups and downs to come in the stock, we believe the long-term value of the business, by the time anything strategic can actually be worked out, is still below the current level of the stock."
Compounding the outlook? RIM recently announced another round of layoffs. The company didn't say how many employees are losing their jobs but noted that it has "reduced some positions as part of its program and may continue to do so as the company methodically works through a review of the business."
RIM slashed about 2,000 jobs in July 2011. It had a headcount of about 16,500 employees as recently as May of this year. RIM hopes to save about $1 billion in costs via a restructuring plan that it is currently undertaking. RIM didn't say what departments are being affected by the new headcount reductions, but the company will provide more details in its quarterly earnings report, due June 28.
June 28 is going to be something akin to D-Day for RIM. Morgan Stanley believes it will significantly miss its projected earnings, and doesn't expect the news to be kind to RIM's stock price.
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