Why Research In Motion Is Sinking Fast
I recall looking at clothes maker Guess Inc. (NYSE/GES) when the company was quickly tanking and trying to turn its fortunes around from 2001 to 2003. You could have purchased the stock for $1.78 in March 2003. What intrigued me about the situation was the strong brand awareness of Guess. My stock analysis was Guess could rally if management improved operations. This materialized as the company reported stronger results, and in the process, the stock surged to over $48.00 in September 2007, up 2,597% in just over four years.
A similar situation happened with Apple Inc. (NASDAQ/AAPL), rising from the $1.00 level to over $600.00, where the stock currently sits.
Unfortunately, my stock analysis cannot say the same for “BlackBerry” maker Research In Motion Limited (NASDAQ/RIMM). Since the company first started to show cracks after reporting weak results and constantly delaying the release of its new BlackBerry, I questioned the company’s ability to execute. My stock analysis was that, given the cutthroat competition in smartphones and tablets, Research In Motion (RIM) acted as if it was still in the 90s when it was at the top of the personal digital assistant (PDA) market with its real-time e-mail BlackBerry PDA. But 20 years later, the competitive environment has changed. The problem is that RIM failed to take notice of this and let time slip by.
My stock analysis is that this horrible execution forced the company’s two co-founders, Jim Balsillie and Mike Lazaridis, to resign. In came new CEO Thorsten Gerhard Heins, but so far it’s been the status quo, as RIM has already delayed the launch of the next-generation BlackBerry.
The reality is that, without strong leadership and vision, a company cannot survive and fend off rivals.
In my stock analysis, Apple would not be where it is without the vision of founder Steve Jobs.
Faced with a crippling decline in its market share for smartphones and a nearly non-existent market and demand for its tablet “PlayBook,” RIM is in serious trouble based on my stock analysis. The company was hoping to dominate in China, but Apple is king there.
RIM is estimated to lose $1.50 per diluted share in fiscal 2013 (February month-end) and another $0.61 per diluted share in fiscal 2014. That’s a combined loss of over $1.1 billion. My stock analysis is that with only $1.9 billion in its coffers and facing declining cash flow, RIM is in its own financial crisis.
RIM recently announced it was slashing about 5,000 jobs from its global workforce by the end of fiscal 2013. There is now unconfirmed speculation swirling that the company may cut an additional 3,000 jobs in an effort to cut its operating costs by over $1.0 billion.
I see a red flag based on my stock analysis.
Companies don’t tend to cut this significantly, especially when it is in a fierce battle to maintain market share. You want to spend to boost R&D and marketing. Think Apple!
On Thursday, RIM announced it was closing its BlackBerry store in Boston. I have been to the store, and I must say there is little traffic compared to the Apple store in Boston.
I wouldn’t be surprised to see the few remaining stores closed.
But the question is: is RIM sinking to the bottom?
Only time will tell, but I think it will only be a matter of a few quarters (and possibly more delays) before we will know that answer.