Bankruptcy Now a Possibility for RIM

RIM: BankruptcyJust when you think it couldn’t get any worse for Research In Motion Limited (NASDAQ/RIMM), the company seems always to find a way to disappoint. Another quarterly earnings report and more disaster lead to an increasingly gloomy market view. Technology stocks continue to miss targets and estimates are to be avoided like the plague, as this is a sign that management has no idea of how to run their company properly. The market view was extremely poor following the results that revenue fell in the quarter by 33% from the prior quarter.

Even worse than the latest quarter’s sales numbers is news that Research In Motion (RIM) is delaying the launch of its new “BlackBerry” phones once again. The new operating system and BlackBerry phones won’t be on the market until the first quarter of 2013, a huge delay for a technology stock. This is truly mind-boggling and a sign that investors should focus on other technology stocks.

RIM has been out of touch with what the market wants for the past few years and it shows. Yes, RIM is trying to cut costs by laying off 5,000 people, but management should have realized they were far behind other technology stocks a long time ago and adjusted their cost base then. RIM’s shipment of phones for the quarter was only 7.8 million, as compared to 13.2 million BlackBerrys shipped during last year’s quarter, a drop of 40%! Technology stocks can’t continue to exist at that pace of decline.

As I wrote in my article “Is Research In Motion Preparing for a Sale?,” they’d better hurry up and sell the company, or bankruptcy will be on the table. While some analysts take the market view that RIM might last 18—24 months before going under, I think it might be sooner. Two reasons: the cost of laying off employees is going to be high, and the delay in introducing the new phones means more people are going to migrate to one of the other technology stocks. Once you leave, you aren’t coming back as a customer, and with other technology stocks creating far better products, RIM is just not able to compete.


 Research in Motion Ltd Chart

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The market view for RIM has been poor for a long time. There is no reason to think otherwise, looking at the chart. While many technology stocks have performed extremely well during the past year, RIM is not one of them. Unless something truly dramatic occurs, the market view will continue to be bad, and I would suggest looking at other technology stocks.

At least RIM has been consistent over the past few years. It has consistently lost market share, consistently delayed introducing new products, and consistently disappointed investors. Go with the trend and expect it to continue missing every estimate it announces until proven otherwise.