Last Friday, Research in Motion (RIMM: Charts, News, Offers) crashed more than 20% after it announced mediocre first quarter results and that its second quarter revenue would decline for the first time in nine years. The company’s first quarter earnings came in at $1.33 per share on revenue of $4.9 billion. Analysts on average expected earnings of $1.32 on revenue of $5.15 billion. The company shipped 13.2 million units versus the 13.5 million units forecast. The news that sunk was its dour second quarter guidance – earnings between 75 cents to $1.05 on revenue of $4.2 to $4.8 billion, far below the analysts’ already lowered expectations of $1.40 per share on revenue of $5.46 billion. RIM did not provide a forecast for shipments, although analysts currently expect 13.5-14 million units shipped.
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The cause of RIM’s troubles is obvious – Apple’s (AAPL: Charts, News, Offers) iPhone and Google’s (GOOG: Charts, News, Offers) Android handsets have now become the de facto standard in handsets, marginalizing former market heavyweights Nokia (NOK: Charts, News, Offers) and Research in Motion. Research in Motion hasn’t offered a new flagship Blackberry model since August, and its existing products are getting punished on the high end by the iPhone and iPad, and on the low end by Google’s Android products – especially in Latin America, Asia and Europe – where the lower-end Blackberry Curve is losing ground.
The company has sold approximately 500,000 PlayBook tablets since its launch on April 19, which trounced analysts’ expectations of 350,000 units sold, but it then pushed back the release of its highly anticipated 4G Playbook models until fall 2011. Compare this to the 4.2 million iPads Apple sold in a single quarter, and the initial aspirations of the Playbook being an “iPad-killer” fade quickly. The Playbook is also facing an uphill battle with carriers – U.K. carrier O2 refused to carry the tablet due to “issues with the end to end customer experience”. Both AT&T and (T: Charts, News, Offers) Verizon Wireless (VZ: Charts, News, Offers) have stated that they are “still evaluating” plans to sell the Playbook, and only Sprint Nextel (S: Charts, News, Offers) has remained committed to the tablet, despite repeated delays. The Playbook has been criticized for its lack of native e-mail and calendar apps as well as clumsy support for Google Android.
To make matters worse, RIM also delayed the release of its BlackBerry Bold 9900 and 9930 models until the end of August. The company’s share of U.S. smartphone subscribers also declined 4.7 percentage points to 25.7% in April from three months earlier.
In the midst of this crisis, RIM chief operations officer Don Morrison is leaving the company due to medical reasons. RIM’s dual-CEO setup has also drawn harsh criticism, with critics claiming that the left hand is simply not talking to the right hand, and that the setup, where CEOs Mike Lazaridis and Jim Balsillie, is clumsy and inefficient for a company that needs to react quickly to rapidly shifting market trends. Despite calls to step down, the two CEOs have held their ground and announced that they would reduce an unspecified number of jobs and make organizational changes to accelerate new product launches, as part of a company-wide “streamlining” initiative. CFO Brian Bidulka stated that these cost reductions would start appearing by the third quarter of 2011. The revenue gained from its upcoming products also wouldn’t appear by the third quarter earnings, at the earliest.
RIMM once traded about $140 per share prior to the 2008-2009 financial crisis, and has yet to recover from the blow. Shares have plunged 39% in this year alone. Major institutional investors have lost faith in the company – on Friday, the company’s sixth-biggest investor, Montreal-based investment firm Jarislowsky Fraser Ltd., dumped over half of its RIMM shares – 10.2 million shares valued at approximately $361 million. Chairman Stephen Jarislowsky didn’t mince words when he stated bluntly, “They are resting on their laurels. Steve Jobs is a much better marketer than RIM.” After its steep sell-off, the stock currently trades with a forward P/E of 4.2 and a PEG ratio of 0.5, but there are few bullish catalysts on the horizon to break RIM’s devastating losing streak.
Other News About RIMM
Research in Motion gets multiple downgrades, shares sink.
A timeline of RIM’s epic fall from grace.
Other Stocks in the News
Celestica down 6% after RIM Q1 outlook
RIM’s crash drags down supplier Celestica.
Apple to Capitalize on RIM, Nokia Stumbles
Apple looks to be the winner after the fall of Nokia and RIM
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
Correction: RIM did not sell 500,000 Playbooks, they *shipped* 500,000. They aren’t saying how many are actually in the hands of consumers.
That’s worrisome.