After two bruising trading sessions following a profit warning late last week, investors on Tuesday finally found some love for beleaguered BlackBerry maker, Research In Motion Ltd.
Shares in the Waterloo-based company rose by more than 9 per cent to $27.74 in Toronto on takeover speculation, word of job cuts and rumours that Apple Inc.’s latest iPhone may be late to market.
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RIM last week lowered is sales and earnings forecast for the full year partly due to delays in getting its latest generation of smartphones into consumer’s hands. The warning shaved more than 25 per cent off the value of RIM shares.
The company also said it would reduce its staff of 17,500 but has withheld details, even after a Waterloo radio station said about 200 largely contract manufacturing workers were handed layoff notices on Monday. RIM has about 9,000 workers in Canada, including thousands in the southwestern Ontario city.
Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto, said bargain hunting investors may have rediscovered RIM after the stock was “vastly oversold” and emerged as a favorite target of short sellers.
He also said any takeover of RIM would likely involve a hostile pursuit, given that the company’s co-chief executives say they are more committed than ever to turning RIM around as a free-standing entity.
Other analysts said while they recognize that RIM has valuable assets, the deteriorating BlackBerry brand makes a near-term buyout unlikely.
But MKM Partners analyst Tero Kuittinen said Asian companies such as laptop maker Lenovo Group Ltd. may be interested.
“Many of them have been unable to craft a credible smartphone strategy,” said Kuittinen, who added that RIM’s streamlining announcement was a signal to investors that it wants to conserve cash.
“They want to convince people that they are not going to start burning cash even if they’re going through a rough period. That’s what they really want to make sure that Wall Street knows.”
Analysts speculated in research notes this week that tech companies including Microsoft Corp., Apple, Dell Inc. and Oracle Corp. could take a run at all or part of RIM given that it is debt free, has a strong cash position, expects about $6 (U.S.) in per share profit this year — and because of the value of its unique and highly encrypted email messaging system that remains the standard for many corporations and governments.
But analysts also pointed out that most of the companies cited are facing their own challenges, with Microsoft, for example, rumoured to announce layoffs with its earnings report in late July amid a tepid stock performance. PC maker Dell is a revenue-generating machine but the company carries more than $7 billion in long-term debt, while Apple may be facing headwinds in launching the next iPhone.
Oppenheimer & Co. analyst Ittai Kidron cut his price target on Apple Tuesday and said the company may not release the next model until late September or October, which would lead to slower September sales.
Kidron, who maintained his “outperform” rating on Apple, reduced his 12 to 18 month target on the stock to $420 from $450 and his expectations for iPhone sales in the quarter ending in September to 19 million units from 20.5 million units.
On Thursday, as it announced fiscal first-quarter earnings, RIM cut 2012 earnings projections amid a loss of market share in the U.S. and as competition lowers prices for its devices in fast-growing Asian and Latin American markets.
RIM blamed product release delays partly on difficulties in obtaining carrier certification for its new phones.
As well, said co–chief executive Mike Lazaridis, “the features and performance arms race demanded that we upgrade the chipset and port BlackBerry to a higher-performance platform. This was an engineering change that affected hardware and software timelines and pushed out entry into carrier certification labs.”