RIM Crashes - stock down 16%; 5,000 cuts confirmed; BB10 delayed until 2013 - but I see one positive

Anyone who was praying for a miracle on RIM can now officially stop.

RIM announced its quarterly earnings today and the news was bad. Revenues for the quarter fell from 4.9B in the previous quarter to 2.8B this quarter. The company reported a $518M loss for the quarter.

In addition, RIM announced it is cutting 5,000 jobs and that BB10 will be delayed until 2013.

The stock is currently down 16 per cent in after hours.

You can read more here.


While RIM has 2.1B of cash reserves, one has to wonder how long that will last with losses running at 500M a quarter? That's less than a year of operating capital considering this quarter's losses.


I'm actually going to be a bit of a contrarian here and say that this might actually be a moment to buy some RIM stock. If not tomorrow then perhaps the day after.

The simple reason being that this quarter is going to wash out a lot of investors and we might be seeing a bottom in the stock price. With all the bad news behind it, it has three months to stew in the markets where everyone who was going to sell will have sold.

There's really no more bad news that we can expect to hear out of RIM.

• The co-CEO's are gone
• Almost all their senior executives have left
• BB10 is delayed
• They've slashed their workforce some 30 per cent
• We can assume that morale at RIM must be horrible right now (which will impact productivity and business decision capabilities moving forward)
• We know they are now bleeding cash

The stock price tomorrow, whatever it ultimately settles in at, will reflect all that (hence why it should be down at least 15 per cent when the markets open). 

If you believe, as I do, that all the bad news is priced in and existing stock holders will finally bail on RIM after having been slaughtered over and over again, then you are buying in at a possible bottom.

In addition, with the stock now trading well below eight bucks, RIM becomes a serious acquisition target. If anyone out there wants to buy RIM they are going to make a move in the near future at these prices.

On the PR front I've been critical of RIM in the past, but I'll say this, they are handling this situation as they should. They are getting all the bad news out of the way and re-adjusting expectations quickly. 

They could have dragged their heels in letting executive management go. They could have saved the delay on bb10 to next quarter in terms of being forthright with the public. They could have spun their situation and tried to position this quarter as a one-off in terms of the scope of the losses. 

But they didn't do any of those things. They took their medicine. 

While current shareholders aren't going to be too happy about that, it will serve the company well over the next year. 

Additionally, this I believe will mark the end of the 'kick RIM in the nuts while they are down' media trend. 

The media, rightly so, have been covering this train wreck for some time now. Every quarter for the past few years are endless stories articulating the mangled mess RIM has become. 

But from here on out there's simply no purpose any more in kicking RIM while its down. So the media will most likely shift their focus to what next?

It's not too difficult to predict what is next for RIM. They have to get back to profitability and/or sell the business. There have been talk of them selling off their handset division. I'm not sure what I think about that right now. Such a sale is tantamount to selling the actual RIM brand. For better or worse, making the handsets with the actual Blackberry logo on them is what defines RIM to most consumers. To sell that would basically be to abandon their brand completely. 

In addition, to focus on the software side of the business holds no guarantees of growth. Traditional, I've always found its a bad sign when a hardware company ditches its expertise (ie. hardware) for software. The promise of software is that it's far less expensive to make. The only problem is that its extremely hard to develop a well known brand for software. Only a handful of companies have done so successfully - Microsoft, Adobe, Apple, and ummm, that's all I can think of really. 

Even Google, while they are a software company, aren't seen as such. They are seen as a services company. No one thinks of YouTube or Google as software, they think of them as services. 

So selling the hardware side of the business would be a HUGE gamble for RIM. It would put cash in the bank, allow them to regain profitability and buy them time to re-invent themselves, but at the cost of essentially losing their brand. 

And I should state as a warning that I think all companies, RIM included, are subject to serious market downturns that I think are coming over the next 12 months. So it's possible that RIM could find itself crashing down to five bucks or less if the markets as a whole collapse. 

Yet, even with that possibility, RIM is very interesting at the seven dollar mark. Just a whiff of acquisition could pop the stock 10-20 per cent over night at these prices.

In addition, they are handling their situation properly. Right sizing the business and being open with the public about the challenges they face tells me that internally they aren't sticking their heads in the sand. They are facing up to the reality of the situation they are in, which is a positive sign. 

Anyway, I don't see how RIM will ever dig itself out of this hole, but that doesn't mean it can't try or that it's not worth considering as a buy at seven bucks a share.  While I'm still avoiding the stock market like the plague, I might dip my toe in to RIM tomorrow. 

We'll see.