RIM's turnaround prospects: Analysts highly skeptical

RIM's turnaround prospects: Analysts highly skeptical

Summary: Analysts give RIM props for stabilizing, but say the company still has a rough road ahead. Can it continue to sell BlackBerry 7 devices in emerging markets to keep sales stable?

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Research in Motion delivered better-than-expected second quarter sales, showed it can be resilient and even sparked some hope about a turnaround. Analysts were having none of it.

The commentary following RIM's quarter was across the board negative. Sure, analysts gave RIM a few props, but for the most part agree that the company is toast.

Research in Motion reported a second quarter loss of $235 million, or 45 cents a share, compared to earnings of $329 million, or 63 cents a year ago (statement, Techmeme). Revenue for the second quarter was $2.9 billion, down 32 percent from a year ago. Wall Street expected RIM to report a second quarter loss of 46 cents a share on revenue of $2.5 billion.

In other words, RIM CEO Thorsten Heins showed his company can reel in costs, become more efficient and sell BlackBerry 7 devices in emerging markets. Any turnaround talk is highly premature say analysts. Here's a look at the commentary bouncing around Wall Street about RIM.

Northern Securities analyst Sameet Kanade said investors should head for the exits on RIM:

In contrast to the positive reaction to yesterday’s FQ2-13 results announcement, we continue to believe that RIM’s fundamentals are expected to deteriorate going forward given the need for a significant investment in the BB-10 device build-out and the risk associated with potential success of this new platform. We believe investors should utilize this short-term euphoria to exit or reduce positions until C2013 when the potential for success of the platform becomes clearer.

National Bank analyst Kris Thompson took the other side of the RIM trade:

Increasing target price to $12/sh; we think there is money to be made ahead of the C2013 launch of BB 10. The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash and seemingly readying an early C2013 BB10 global platform launch.

Thompson's take was in the minority.

rimm092812a
These BlackBerry 7 devices will sell in emerging markets with immature networks that need RIM's compression technology.

Morgan Stanley analyst Ehud Gelblum said it's relatively easy to maintain share when you sell devices at a loss:

RIM appears to be focused on maintaining and growing its subscriber base - even at the cost of profits - a strategy we did not fully appreciate previously, and one that is not sustainable indefinitely. While total gross margin of 28.4% was actually up 40 bps q/q and 40 bps ahead of our estimate, we calculate device gross margin remained negative for the second quarter in a row at (5.9%), albeit a slight improvement from (7.7%) in FQ1. In FQ3, we expect device gross margin to fall again, deeper into the red to (11.6%) as RIM competes against the iPhone 5 and a host of other well-priced Android and Windows 8 devices heading into the holiday selling season.

Jefferies analyst Peter Misek said that RIM's prognosis remains grim even with an emerging markets push.

Management focused on less competitive geographies such as Venezuela, South Africa, Indonesia, the Philippines, and other parts of Asia-Pac. In these countries, networks are immature and therefore the Blackberry platform works best due to its compression technology. Management highlighted that the strength in net adds was due to BBM and we believe it indicates a further shift towards the consumer market, which brings with it lower subscriber fees. Despite the better than expected quarter, challenges remain. RIM is a subscale handset maker that is losing share in all major geographies going forward, especially in the higher ASP/ARPU developed markets. Following the launch of the iPhone 5, we believe market share losses accelerated in the UK, Canada and other iPhone markets.

More: RIM's Q2: Ugly results on tap | RIM asks developers to keep loving BlackBerry. Do I say 'I do'? | RIM's BlackBerry 10: Why I still believe | RIM banking on BlackBerry Balance, HTML5, BYOD trend

Topics: Mobility, BlackBerry, Smartphones

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13 comments
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  • Stick a fork in them.

    They're done. Too little...and WAY too late.
    IT_Fella
    • I have to agree

      I just couldn't see me gambling on a new BB, given all the other options available to me.

      Their security advantages are slowly becoming irrelevant, and I do not need them in any event.

      It is scary how quickly a company can go from dominance to irrelevance in the mobile sector.
      D.T.Long
    • just wait

      If all I read were zdnet & cnet among others, would have written RIM off long ago. It doesn't matter what RIM does, those sites will find a way to spin it negatively. I honestly believe that BB10 has them scared to death. No more boring...touch a icon,open it, close that app, touch another icon, open it, close it. Android & Apple both going to be scrambling to catch up to RIM once BB10 launches
      gordongr
      • Seriously?

        My university is closing down ALL of its BES servers. New BB devices have not been available to faculty & staff for nearly a year. Current ones in use are being replaced with non-BB devices as contracts expire.

        I have a Playbook, but its e-mail program...that took RIM a LONG time to add to it (no calendar or native e-mail apps on launch...a SERIOUSLY STUPID move by RIM)...is very user UN-friendly. It is a nice tablet, but has been relegated to being a paperweight because of the crappy e-mail program.

        Also the lack of very many USEFUL business/enterprise applications is another reason. I don't give a rat's a55 about flashlight apps, games, or the myriad of other child friendly apps available. And the "availability" to run Android apps on it is a joke.

        Sorry...but it's RIM who are playing "catch-up"...and they are light years behind at this point.
        IT_Fella
  • "Catch up"?

    No-one is scared. Unfortunately I think BB will be drowned out by WP8, iPhone and Android, not necessarily in that order. BB simply does not have the resources nor the mind share to stage a comeback. Who will write apps for the platform?

    My family owns 2 BBs, but they have been jail broken as plain GSM devices. They are quality phones. As much as I wish you were right, I am afraid BB will disappear sooner rather than later. I would never consider another BB, because I have no faith in them being able to create an ecosystem to meet my needs. I have no desire to spend my money on a door stop.

    If I had to to pick a winner between BB making a successful comeback or HP successfully re-entering the market with an open source WebOS line of phones/tablets, I would probably pick HP. Call me crazy, but that is how weak I see BB's position being.
    D.T.Long
  • growing sector

    The smartphone market is a growing sector. They can lose marketshare and still increase customer base and revenue.
    How many customers does a company RIM's size need to be profitable.
    Is getting rid of aging inventory and increasing both customer base and monthly fees collected a bad thing if that also increases your money in the bank?
    Keep in mind that BlackBerry is a big and well respected name in most parts of the world. North America is not the end all and the be all.
    Susan Antony
    • Really?

      I've heard all of this before. That North America isn't the "end all and be all" of available markets. That is bull. If RIM can't make any more of a dent in the North American market, particularly in the U.S., they are done for. ZDNet aren't the only one's writing this epitaph. Whatever gains they had yesterday are all short term. The stock has fallen to only a 5% increase on the market. Until they have devices out in the consumer market, then we can see if they can buck the trend. Missing the Christmas season, I doubt that they will.
      fhinton
  • Hate what you Fear itards and Antards

    In all reality Rim could come out with the most revolutionary OS tomorrow and the same old dribble will come out from all the bloggers day in and out as it seem its become cool to hate on Rimm. This artical just shows the hate ZDnet and others have for Rimm, Rimm surprised everyone with the earnings report and even came out with and EXTRA 100 million to put in the piggy bank. ZDnet fails to see any positives because " blinded by hate for Rimm" in the earning report or that that Rimm was trading for $9 last night,it shows the support is coming "slowly" and will continually to grow closer you get to bb10 launch. Blackberry will be fine just going to be stressful for a few more quarters, the blogger just jack up the volume of all the chicken littles running around screaming the sky is falling..

    I dont see where or why all hate is coming from, unless it falls back on the good old human trait we all have "hate what we fear". Keep hating ZDnet it just show your lack of knowledge..
    mike070
    • Another One

      What is another $100 million compared to another $100 billion that Apple and Google have made while we've been sitting here? Hate for RIM, are you serious? If that is the case, then TD Securities and The Wall Street Journal are thrown in for good measure. Neither think much of RIM's prospects at this point. The way I interpret what I've read so far is that the first quarter of next year will end as many others have, with RIM barely holding onto life support. And investors may end up pulling the plug on them.

      I used to be a BlackBerry customer and it is sad to see how far they have fallen. Tepid growth over the past year and devices that have fizzled out as time has worn on doesn't bode well for the company.
      fhinton
      • Yep another one

        well what i see is people are only taking from the past...... Regardless how this plays out the company has made large steps in the right direction since the two clowns have step down and if you cant see that you must be filled with bitterness ..
        mike070
        • dam

          contiue; as for the fizzle of the product sure they are running on old ass hardware that was released back in 2010 that I can agree on who was running the ship back then the two zipper heads.. I've had chance to paly with the bb10 at the america's and its pretty slick didnt care for the hardward being the physical body of the phone but I realize it was just a beta dev device and not the final product.. If Blackberry does come out with a good over all outer design and polish the os I think they will reagin some of the lost market and will be fine but will still have afew tuff quarters.
          mike070
        • Nothing to see here.

          That isn't what I've seen this week. Heins, actually believes that BlackBerry will take market share from it's competitors. That is laughable. Their stock is stuck in the single digits and some are predicting that it will soon be a $5.00 stock. The two clowns, as you put it, are gone but not forgotten. Heins is making the same grandiose statements and missteps that they had.
          fhinton
  • Did they really turn around??

    Or did they do some "creative accounting" to show improvement?

    It is hard to believe that there is a "turn-around" when there is no real sales numbers that can backup the claim.
    wackoae