The business world often uses jargon to blunt the edge of brutal reality. Executives aren't fired for utter incompetence; they leave their jobs to spend more time with their families. CEOs, after they've failed miserably in their attempts to turn their companies around, don't come out and say they're looking to sell the businesses in whole or in parts; they instead hire bankers to "explore strategic options."
The gentler language might put a slight gloss on the facts but it doesn’t change them. So it is with Research in Motion, which got a boost this week when CEO Thorsten Heins reiterated in an interview with German newspaper Die Welt that the company is considering its options, including the possibility of licensing its software and selling its hardware unit. That wasn’t news. RIM had announced in March 2012 that it was “undertaking a comprehensive review of strategic opportunities.” It followed up by hiring J.P. Morgan and RBC Capital markets to help with that process. Analyst Mark Thompson of Avian Securities summarized the company’s options: “sell, break up the company or die.”
Months later, Research in Motion has yet to do any of those things – but the stock has been rallying anyway in anticipation of the launch of the new BlackBerry 10 operating system and phones on January 30. RIM’s share price has soared more than 180 percent since late September, when it hovered just above $6. “At its floor – at a price of $6 or $7 – that essentially implied cash plus patents for the business, and virtually no chance that BlackBerry 10 would succeed,” says Morningstar analyst Brian Colello. “Now there’s at least some optimism that BlackBerry 10 will bail out the company and that RIM will prosper, or at least there’s a slim chance of that.” Some analysts have jumped back on the bandwagon, issuing a series of upgrades and bullish reports.
Has Research in Motion really backed away from the brink? The answer will be determined by how the BlackBerry 10 devices – the company’s long-awaited key to a comeback – are received over the coming months. “It’s all tied to BlackBerry 10,” says Colello. “If this is a good operating system then that opens up a bunch of avenues for the company, either licensing to others or selling the hardware business or running the business as is and doing much better than anticipated and stopping the slide that it’s been in.”
That slide has been long and steep. Research in Motion’s gadgets may have earned the nickname CrackBerries by letting users check their work emails nonstop, but the company missed out as the iPhone took smartphones from business tools to instruments for nearly every part of life. “There’s an app for that,” iPhone ads told consumers – and it wasn’t available on a BlackBerry. Research in Motion’s market share dropped, its cultural relevance faded. RIM’s share of the smartphone market was above 40 percent as recently as 2010 , according to comScore. By November of last year, that figure was down to 7.3 percent. Crackberries, while still used in corporate and government settings where security mattered, simply lost their cool. At his inauguration on Monday, President Obama may have checked his BlackBerry from the reviewing stand while waiting for a parade, but his daughters Sasha and Malia were snapping pictures on their iPhones.
The early buzz about BlackBerry 10 has been encouraging, but it’s too soon to call the new operating system and devices winners. Despite the renewed optimism from some analysts, plenty of skeptics remain. Citigroup analyst Jim Suva on Wednesday reiterated his sell rating and $6 price target for the stock. “While we acknowledge sentiment to improve as launch date nears and carriers announce support, we remind investors that actual sell through matters to determine the true financial impact that the new OS and hardware will have on the company’s financials, especially in an increasingly competitive environment.”
It will likely take a quarter or two to know if the new BlackBerry will bear fruit. “We’re already hearing news that carriers are adopting the systems and it’s gaining some acceptance and there is some excitement about it. That can’t be dismissed at this point, but at the same time there was excitement about Palm, for example, a few years back as well, and you saw that company had the same sort of spike in the stock price in anticipation,” says Colello. “Then when sales didn’t live up to expectations it came crashing down. So no matter how nice BlackBerry 10 is, we have some concerns that it could be too little too late.”
