Jun 29, 2012
11:51 AM RIMM Drops 18%: Four Downgrades; Cash Crunch Worries
By Tiernan Ray
Shares of Research in Motion ( RIMM) are down $1.61, or almost 18%, at $7.53, adding to losses in the pre-market session, following a much-worse-than-expected fiscal Q1 report last night, and a forecast for another operating loss this quarter, a laying off of 5,000 people, and a delay until next year of its next-generation “BB10” software.
The stock has gotten four downgrades, that I can, see, from Merrill Lynch Société Genérale, Scotia Capital, and CIBC, all rating it a Sell, and price targets and estimates are dropping everywhere. The lowest target I’ve seen is $5.
Note that CIBC’s Todd Coupland had been one of the last remaining bulls on the shares.
Coupland, who cut his price target to $8 from $20, this morning writes “The most disappointing information was that BB10 will be delayed until Q1/2013.”
“BB10 should help if marketed right, but the share price will continue to wade in single digits until then […] the delay of BB10, international sales declining over $1 billion and gross margin falling over 1,000 basis points in Q1 alone will continue to put downward pressure on the stock for the balance of 2012.”
All the research today bemoans the lack of BB10 in the next several quarters, while Apple ( AAPL), Samsung Electronics ( 005930KS), Microsoft ( MSFT) and Google‘s ( GOOG) partners bring more gear to market.
But there is also some discussion of RIM’s cash position. That position is solid, but the term bankruptcy has been tossed around, with analysts taking differing views on what a cash burn rate may be for the company going forward:
Andy Perkins, Societe Generale: Cuts his rating to Sell from Hold, cutting his target to $7 from $14. “We now forecast losses for both FY12 and FY13 for the company with little more than breakeven in our FY15 forecasts […] Overall, we fear that the hardware operations are now loss- making for the first time in RIMs history. There is also increasing pressure on service revenues as higher ARPU US subscribers are replaced by lower tiered users from outside the US.”
Shaw Wu, Sterne Agee: Reiterates a Neutral rating. “We believe the company needs to be careful with its cash or risk facing bankruptcy […] Despite a $308 million operating loss, its cash balance improved to $2.2 billion from $2.1 billion last quarter. This was due to the company collecting on its receivables where its balance declined to $2.8 billion from $3.6 billion last quarter. At this point, we believe the RIMM story is more about surviving and cash preservation. While it is painful for us to see layoffs, it is necessary for the company’s survival. We believe a key risk is how much cash the company uses with its 5000 in headcount reductions by the end of FY13.”
Phillip Huang, UBS Securities: Reiterates a Neutral rating, while cutting his price target to $10.50 from $11.50. “In an industry where qtrly delays can be devastating, RIM is back in the unfortunate position of another product void of 1-yr+ (since BB7) […] there are no major catalysts for the shares the next 2 quarters, outside of any unexpected development pertaining to M&A, a break-up, or a compelling partnership or licensing arrangement. We expect operating losses at least for the next 2 quarters, with cash/equiv remaining flat q/q in Aug. and uncertain thereafter.”
Michael Genovese, MKM Partners: Reiterates a Neutral rating while cutting his “fair value estimate” to $8 from $12. “urn. RIMM generated $558mn of free cash flow in a quarter where it reported ($0.37) EPS due to high non-cash amortization expense. Even though amortization will ramp down over time as RIMM cuts capex, it can likely operate around cash flow breakeven while generating annual losses in the dollar-per share range. The company announced it is laying off 5,000 workers, or more than 30% of total, to reduce $1bn in costs. We lower the cash component of our Fair Value estimate to $2 per share from $4 to account for restructuring outflows. We also lower our Services business NPV estimate to $3 from $4, since ARPU is declining, and cut our estimate of the value of the IP to $3 from $4, since RIMM’s technology is falling further behind. Our overall fair value estimate drops to $8 from $12.”
James Moorman, S&P Capital IQ: Reiterates a Sell rating, while cutting his price target to $7.50 from $9.50. “RIMM has again delayed the launch of the BB10 platform and devices until Q1 of calendar 2013. We believe this puts RIMM in a precarious situation as it must now endure expected launches from Samsung and Apple with an aging lineup going into the holiday season. |
