Canadian technology giant Research In Motion faces a crucial test in the months ahead as the company works to bring new devices to market while weathering a slowdown in sales, telecom and industry observers say.
The smartphone-maker said Tuesday it expects to make significant layoffs and will report a first-quarter operating loss due to weak sales of the once-ubiquitous BlackBerry.
It also announced that two outside companies, JP Morgan and RBC Securities, were being brought in to advise on strategic options to improve its performance – including the possibility of a full or partial sale of the company.
"From what we can tell, it looks like all things are on the table" as RIM looks for strategic alternatives, said Troy Crandall, an investment analyst with MacDougall, MacDougall & MacTier.
There have been suggestions, including from some of RIM's shareholders, that the company could separate operations that make the BlackBerry smartphones and PlayBook tablets from the operations responsible for networks and intellectual property.
Another possibility would be a more focused approach on fewer product lines, with greater emphasis on the business and government sectors and less on consumer-oriented devices that compete with Apple, Samsung and others.
RIM also owns a trove of thousands of patents, for which there could be significant demand.
To boost sales and combat its falling share price, RIM’s top priority will be to launch its much-anticipated BlackBerry 10 devices later this year, Crandall said.
But that could mean lower than normal sales through the summer months.
"It’s hard to sell a handset when you’re telling everyone that a great new handset is on its way," Crandall said. "It’s a really tough marketing job."
No quick sell-off
The latest bad news from RIM has stoked speculation that the company could be destined for a hostile takeover, or that it may move quickly to sell parts of the company to potential customers such as Facebook or Microsoft.
RIM's shares, which reached a high of $140 US on the Nasdaq in 2008, closed down in Wednesday’s trading to $11.23 US on that stock exchange and $10.66 on the TSX.
But Krista Napier, a senior analyst at IDC Canada, said the decision to hire JP Morgan and RBC Securities doesn’t mean RIM is getting ready to sell assets quickly. It’s more likely that spinning off and selling parts of the company would take place after the launch of its next-generation software platform.
If the launch goes well and the new BlackBerry is a success, RIM would be in a better position to get more money for parts of the company it may be willing to shed, Napier said.
Thorsten Heins, RIM’s recently appointed president and CEO, unveiled the new BlackBerry 10 operating system earlier this month. Many analysts say the company needs a warm reception for the new BlackBerry and operating system in order to save the business, which employs more than 16,000 people.
Few bright spots
Queen's University business professor John Pliniussen said RIM needs to do a better job of focusing on the few bright spots in its operation.
"They have to let investors know they’re doing really well in the Middle East and in global markets," he said.
"All of us hope and want RIM to come out of this new and invigorated," he added. "It might be a very different-looking organization, but we don’t want another Nortel."
RIM continues to outsell the iPhone in some countries, including in Latin America and the Middle East, and the company has been opening retail stores abroad, including in Asia.
But success in emerging markets won’t be enough to ensure its survival, according to Amit Kaminer, a telecom analyst with the Seaboard Group.
"Nokia learned that pretty well," Kaminer said. "They’re now more humble."
After a few years of "resting on their laurels," RIM is finally "past the denial period" and is moving to save itself, he said, but added it may be too late.
"If we were in the ER, the patient would be in critical condition. The next few months will be crucial."