Analysts were tripping over each other Friday to lower their price targets for Research In Motion (RIM) after the BlackBerry manufacturer's fourth-quarter loss didn't even reach Wall Street's lowered expectations.
"Results are going to deteriorate much further over the next couple of quarters," Will Power, senior analyst at Robert W. Baird & Co. told CNBC on Friday.
With long-promised touchscreen handsets still months away from availability, executives at the former smartphone leader must decide if entering into a licensing deal will make up the shortfall.
New CEO Thorsten Heins said the company is considering any and all options on the table, including partnerships, an outright sale or a licensing pact, which analysts think is the most likely prospect.
"We see a licensing deal announced within the next 3 months," Jefferies analyst Peter Misek said in a recent research note, predicting a 90 percent probability that such a deal would take place. Samsung and HTC, both of which now rely heavily on Android devices, might welcome a competing platform, he suggested.
Licensing, though, would "devastate the hardware business" for RIM, Misek noted, which is the last thing the Waterloo, Ontario-based company needs. RIM is pinning its hopes on the release of BlackBerry 10, but Power said a dearth of third-party apps will make competing with Apple, Google and even Microsoft challenging.
Without a cool touchscreen device to keep customers from defecting, the company has been slashing prices on its existing handsets. It still hasn't been able to boost sales.
On Thursday, RIM reported a net loss of $125 million, or 24 cents a share, in the fourth quarter after booking writedowns on its legacy BlackBerry 7 phones and goodwill.
RIM last recorded a loss under generally accepted accounting principles (GAAP) in the fourth quarter of fiscal 2005, when it booked tax expenses and paid to resolve a patent infringement case that had threatened to shut down its U.S. operations.
On an adjusted basis excluding the writedowns, profit in the latest quarter more than halved to $418 million, or 80 cents a share, from $934 million, or $1.78, a year earlier. Revenue slumped to $4.19 billion from $5.56 billion.
Analysts, on average, had expected RIM to earn 81 cents a share on revenue of $4.54 million, according to Thomson Reuters I/B/E/S.
Excluding several major writedowns, RIM had adjusted earnings of $4.20 per share in the full fiscal year, after forecasting a year ago it would earn more than $7.50 a share.
"Of even more concern, RIM took a $267 million inventory charge on its BlackBerry 7 sales only six months after that product family’s introduction, reflecting very poor demand," Simona Jankowski, Goldman Sachs analyst, wrote in a recent note.
RIM's solution appears to be a re-emphasis on the corporate market and reducing its focus on consumers.
Although Apple has trounced RIM in the consumer market, analysts aren't sure that backing away from consumers is a good strategy; Apple has begun making inroads in the business market, too. Barclays Capital's Jeff Kvaal expressed reservations in a research note, pointing out that more companies today let employees use their own smartphones rather than issuing BlackBerries for corporate use. "We would have preferred RIM emphasize consumer," he wrote.
"The history of wireless is littered with OEMs that had significant product cycle/share gains, but then missed structural market shifts," Jim Suva, a Citigroup analyst, wrote.
With this many challenges facing RIM, Misek said licensing looks like an increasingly appealing choice. Its executives will have a hard time getting favorable terms, though, given the magnitude of its struggles and open expressions of doubt about the company's future from the investment community. "We see this as a good option for RIM but think the changing tactics and RIM's continued poor performance will weaken its negotiating position," he wrote.
The Associated Press contributed to this report.
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