Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Is Research In Motion Preparing for a Sale?

Wednesday, May 30th, 2012
By for Profit Confidential

technology stockWith technology stocks in the hot mobile sector active in developing new technologies, some companies like Research In Motion Limited (NASDAQ/RIMM) are being left behind. With market share for Research In Motion (RIM) in the first quarter 2012 in the smartphone market sector now estimated to be only 6.4%, down from 13.6% in the first quarter of 2011, the company is continuing a massive decline.

As I previously wrote in the article, Beginning of the End for RIM?, the “BlackBerry” maker has massive problems. Just released were reports that more job cuts are coming down the pipeline. Some estimates range from 2,000 to 6,000 layoffs out of a global workforce of 16,500. Technology stocks that aren’t growing and are bloated need to cut the excess fat, no question. These rumors helped the stock move up slightly, as many investors (myself included) believe the end goal for new CEO Thorsten Heins is to clean up the firm and sell it before it’s too late. The last thing other technology stocks want is to buy a bloated firm that’s only a small, marginal player in the market sector.

In addition to job cuts, there are reports of an additional write-down of $1.0 billion, due to a massive inventory glut, since no one is buying these phones. None of this has been confirmed by the company yet. In the mobile phone market sector, there is heavy competition, including the just-released “Galaxy S3” phone by Samsung Electronics Co. Ltd., a technological marvel, in addition to the upcoming “iPhone 5” by Apple Inc. (NASDAQ/AAPL). These phones put any RIM product far behind the technological curve. The market sector is advancing rapidly and RIM is simply too far behind to catch up.

However, the aggressive job cuts and write-downs, if they were to occur shortly, would be positive for the stock. This would finally mean that management at RIM has thrown in the towel and is ready to sell the firm to one of the other technology stocks. With a cash pile of just over $1.5 billion, it had better hurry before its market sector decline starts to eat into this cushion. With quarterly losses in the smartphone market sector of 26% expected for this quarter, on top of a similar decline last quarter, the end appears near and a sale needs to be done quickly.

economic analysis

Chart courtesy of www.StockCharts.com

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The stock has performed poorly when compared to other technology stocks. This of course makes sense when one looks at the market sector decline that RIM has encountered. There are some value investors thinking that the stock price could move up. The chart shows a lot of resistance on the way up. It is quite obvious that $15.00 is a heavy resistance point, but considering the alternative of losing everything, a 40% move up from current levels might be attractive to management. Obviously, this is speculation, as no official word has been released, but the message that management is sending to other technology stocks in this market sector is that “we’re open to any offers.” Current shareholders better hope this occurs soon, because the market sector is eating RIM’s lunch every day.

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Sasha Cekerevac - Investment Advisor, Fund AnalyzerSasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. Add Sasha Cekerevac to your Google+ circles

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