RIM: Destined for massive diet as cash levels, revenue poised to crash?

RIM: Destined for massive diet as cash levels, revenue poised to crash?

Summary: RIM is set up for a triple whammy that may require the company to shed most of its employees just to survive as a niche security device maker.

SHARE:

Research in Motion is a fundamentally broken company that is likely to be split up in parts and may see fiscal year 2014 revenue of about $7 billion, well short of the $12 billion Wall Street currently expects, according to Morgan Stanley.

Morgan Stanley analyst Ehud Gelblum became the latest analyst to ditch any hopes for RIM ahead of what is known to be a fiscal first quarter train wreck. Gelblum downgraded RIM to underweight---a bit late to that party---on the idea that the company won't even be able to hold its book value. Any strategic transformation will require a much smaller RIM that is broken up into parts.

Gelblum's working theory is that the next nine months for RIM will be total hell. First, RIM is going to get crushed in its August quarter amid aging devices, a delay of its BlackBerry 10 launch and a sluggish smartphone market ahead of the iPhone 5 launch. RIM's first quarter of fiscal 2013 will be a mess and the second quarter outlook will be worse.

Related: RIM considers split, handset unit sell-off: Palm 'Groundhog Day?' | RIM's impending collapse by the numbers |

This nine months of hell could be longer should BlackBerry 10 devices---likely in the back half of 2012---be delayed. In other words, current Wall Street estimates are way off on RIM. Analysts expect RIM to deliver and average of $3 billion in quarterly revenue over the next two years. Gelblum's argument is that RIM's revenue base will nearly be halved.

Gelblum said in a research note:

RIM is likely to significantly miss estimates in its FQ2’13 August quarter as it gets hit with the triple whammy of a quickly aging legacy portfolio of BB7 devices, the standard pause in unit shipments ahead of the launch of its new BB10 phone and the overall swoon in the smartphone market caused by the pause ahead of the anticipated October iPhone 5 launch. Market share loss accelerates in FY14 as risks we have flagged earlier intensify, namely 1) competition increases in emerging markets due to increased availability and lower price points of Android smartphones and 2) BB10 misses back to school and the product flops, particularly because it has no keyboard which we believe is a key feature of Blackberries that is keeping the existing Blackberry faithful strong.

And RIM's best asset---its profitable services business---will be consumed by the money pit that is its device business, said Gelblum.

Add it up and RIM will start to bleed cash starting in the second quarter, which has already started.

How will RIM respond? Gelblum argues that RIM will have to get smaller. How much smaller? RIM will likely deliver 10 million to 20 million devices in the future. To break even on that volume, RIM will need to cut 90 percent of its 16,500 employees to wind up with 2,000 workers. In this scenario, RIM will be a niche device maker focused on high-security markets.

This chart outlines RIM's peak and its possible trough.

Topics: BlackBerry, Mobility, Security

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

10 comments
Log in or register to join the discussion
  • He eats too much

    Sell the device business. Give it away. Leave it on the doorstep at a local orphanage. But get rid of it. Now.
    Robert Hahn
  • Continue with the Keyboard!

    RIMM's only hope is its keyboard. RIMM cannot out-Apple Apple, which is what its trying to do. It's now seven months later, and the "train wreck" is evident. RIMM reports earnings this Thursday.
    dpyang@...
  • Niche Device Maker - Nnnnoooooo!!!

    This is insanity.

    RIM has only one thing going for it, the BES Backbone infrastructure, currently tird to proprietry hardware, rapidly becoming irrelevant. BES subscriptions are the only thing making any money, and quite a nice cash cow if the rest of the hopeless/hapless/worthless business was dumped.

    - Shutter the HW business, it is haemorraging money. Hardware is a commodity business these days, you fundamentally need to get this.
    - Shutter the OS business, and sell on QNX to a more worthy owner for some ready cash
    - Firesale all remaining stock for cash
    - Deliver full BES messaging clients for IOS, Android, WP7 & 8, Symbian, Bada
    - Investigate viability of BES messaging clients for SmartTV, PS3, XBox360, DS, Wii/WiiU, Kindle/Kindle Fire,
    - Prostitute yourself for sale to Amazon, Google, Oracle, HP (if they have the stomach for any more mobile), Samsung, Apple etc

    The suggested development of a BES Client on Kindle immensely excites me. Free, as part of an Amazon Prime membership............... ?

    This will stops the raging fire on the RIM cash-pile they still have.

    --
    RIM Keyboard is and always has been riduculous/shite to use - designed for 8 year olds, with tiny fingers. Not a patch on HTC's landscape one on it's former WinMo slider phones.
    neil.postlethwaite
  • Hogwash!

    RIM has more going for it that all the other smartphone makers combined. IMHO, the touch screen phones are designed as toys for eight year old's, and FYI you don't use tiny little fingers for the BB Keyboard. It was designed for the thumb nails, for which it works perfectly.
    ITOdeed
    • RIM KB Fundamentally Useless

      Sorry it is RIM's keyboard that is fundamentally useless. Designed for 8 year olds, with mini-fingers.

      My twice removed slider HTC 620 and 3 times removed HTC O2 XDA were easy to use, landscape KB big enough for grown up's. KMy previous HP iPaq Messanger WinMo Phone and current Blackberry 9360 are useless for typing on - KB is too small to use. A touch k/b like on iPhone is much easier and forgiving to use that the sack of shite that it BB physical KB.
      neil.postlethwaite
  • I hope...

    I hope RIM survives, because I've used the iPhone, HTC, and Android phones and sent them back after a week of frustration. Now I'm a happy Bold user. If RIM gets to the point that it only has one customer, that will be me. You kids can keep your touch screen toys.
    ITOdeed
  • Why am I not surprised?! :D

    Not news to me...

    When I heard a year or two back that RIM was gonna have TWO co-CEOs to help save the company, I knew that was the last nail in their coffin. Who in the World ever thought TWO leaders were gonna do a quicker, better job than one. :D
    tlei123
  • BES

    and I just installed BES 5.0.1 in my Exchange 2010 environment....hmmm, that my just have been a futile joke!

    The problem with RIM and BlackBerry is fragmentation. Honestly, I can't see any distinction between the Bold, the Curve or the Torch! And a Bold 9900 or a Bold 9700, you got me there too!

    RIM needs to put out *ONE* absolutely, great and fantastic phone...they need to not only hit this one out of the park, they need to pull an "Apple" here....they can't stick with their old formula and hope businesses will follow.

    I hope I didn't waste my time installing that BlackBerry server!
    tech_ed@...
    • BBX Phone will be too late

      The BBX phone may be this, but it will be waaaayyyyy to late - a swansong perhaps ?

      Should it get to market, and like WP8 it is a complete new HW needed reset, it will in the fall have to fend off...

      - iPhone 5 with IOS6
      - Nokia-soft Lumia 1000 with Windows Phone 8 (presuming Nokia have bankrupted and been bought out by MS by then)
      - Samsung Galaxy S3 with Android Jellybean 4.5/5
      - Oft'rumoured Amazon Kinde Phone, presuming running Kindle Fire 2 o/s


      for Santa's sack.

      --
      The BES infrastructure will be safe and bought out as this is a cash cow, but currently it is sinking in the swamp of RIM's obsolete HW business's death throes.

      RIM = Polaroid in the 2000's and Kodak currently. They fundamentally mis-judged their market and where it was going, and ignored common sense/industry advice, unlike Fuji/Fujifilm and Konica.
      neil.postlethwaite
    • Your behind ...

      5.01? Get on 5.03 it has a lot of fixes and is needed for Fusion.

      What people seem to forget is the amount of goverment and DOD that use Blackberry for critical communication. It would take 2-3 years to move all those devices to another platform. So RIM is going to stay around for awhile much to the tech blogs dismay. RIM is a secure communcation platform. It's the reason every corporation and goverment used them and will still have a place for those that will never allow the functionality these other platforms do.

      78 million people use Blackberry, if half of them move to BB10 they will have the 3rd place locked up. Windows Phone is dead, Windows Phone 8 has ZERO users and as I former Windows Mobile user I'm never going to let Microsoft throw me under the bus again.
      MobileAdmin