RIM Outlook Bleak With Blackberry Delay

| About: BlackBerry Ltd. (BBRY)

It has been a busy month for the major smartphone makers. If you're a keen observer of these phone manufacturers, they have set the ball rolling for what could be a smartphone palooza in time for the holiday season. Nokia (NYSE:NOK) has recently unveiled the new Lumia series. Together with Microsoft (NASDAQ:MSFT), the phone will showcase the latest Windows 8 platform in an attempt to woo new and existing smartphone users.

Google (NASDAQ:GOOG) also announced a new line-up for its Motorola Razr Phones: the Droid Razr HD, Droid Razr Maxx HD and Droid Razr M. This will be the first device that will go full-in on the Android platform. It will also be the first Razr models with built-in Chrome browsers. It seems that Google is going full force with Motorola as it plans to increase Android market share in the smartphone platform. Meanwhile, the latest high profile announcement came from Apple (NASDAQ:AAPL) when it showcased the new iPhone 5. Apple confirmed 2 million pre-orders in 24 hours, more than double with its previous pre-order record of approximately 1 million units of iPhone 4S.

While this seems no-surprise, Research in Motion's (RIMM) Blackberry is nowhere in sight. RIMM Chief Executive Officer Thorstein Heins announced that it will delay the launch of its next-generation Blackberry phones until next year. Mr. Heins reasoned out the reason for the delay to ensure that the product is completely ready prior to the launch. But, investors did not buy these excuses. The announcement came with another decision to cut 5,000 jobs or equivalent to 30% of its total workforce. This appears to be not a good sign for RIMM, as it indicates that it needs to cut down expenses to avoid terminal decline.

Blackberry Faces Challenges Ahead

It has slower subscriber growth. At this point, it is battling to keep its 78 million subscribers to upgrade to its Blackberry 10 platform. Its main proposition is the high-level of security on its push email and Blackberry messaging service. Management believes that this will bring the steady anchor on Blackberry as it faces the tides of uncertainty over its transition period.

The company is expected to host a developer conference in Silicon Valley next week and will report its fiscal second quarter results on Thursday. Investors will definitely be on the sideline looking for clues on where the profitability will be in the coming quarters. In fact, analysts are more bearish than ever. Analysts forecasted that market share will be below 5%, which would result in subpar operations and profitability. The odds of a turnaround have become higher as Blackberry 10 faces the challenge of acquiring and retaining customers and businesses. Moving forward, it will have a hard time regaining its US customers. Furthermore, new international customers are most likely price-sensitive and will cost a lot to retain them.

A big blow came after Yahoo! (NASDAQ:YHOO) CEO Marissa Meyer sent a memo to all employees. The email said that it plans to move off Blackberry as its corporate phones. The new Yahoo CEO promised both full-time and part-time employees an iPhone 5, HTC One X, Samsung Galaxy S3, or Nokia Lumia 920. This will cost Yahoo a few million dollars, but it will keep it in line with the company's plan to reach out to its users. Also, this will increase the morale of Yahoo! employees, the basic ingredient for the company to turnaround its operations.

The Yahoo! memo underpins Blackberry's declining enterprise business. Gone are the days that Blackberry has higher switching costs due to its security advantage. In fact, enterprises are moving to these smartphones as it has better offerings in terms of apps. This is something that Blackberry lacks. If Blackberry wants to compete, it should create a better ecosystem and should offer differentiated products from the incumbent leaders. Otherwise, it would have difficulty to get back on track.

Two Consecutive Quarters of Losses

Research in Motion reported that the net loss for the first quarter of 2012 amounted to $518 million, or equivalent to $0.99 per share. This is the second consecutive quarterly report that the company reported a loss. Revenues have also declined by 33%, suggesting further weakness in the sales of its old units. I expect to see the same results for the second quarter as it has yet to launch its Blackberry 10 units.

For the year, the company is expected to post a loss of $1.51 per share. This is a decline of 136% compared to the same period last year. But, analysts believe that the company can turn around its operations and grow 7.50% a year for the next 5 years. I believe that these estimates will be updated to reflect the current financial performance. The current competitive environment has significant impact on its business. Given that it has delayed its launch, I expect that existing Blackberry users might consider switching to smartphones which are readily available.

The main problem is that RIMM has a hard time competing with costs. It also cannot compete on user experience as these are the key areas that Apple and Google have clearly dominated. It also needs to build an ecosystem to gather the best developers for Blackberry apps. It took them a while before they could integrate its QNX platform and launch new products based on the Blackberry 10 platform. This is a huge opportunity costs on their part. In a commoditized business like mobile phones, time is definitely of the essence. It is something that management should definitely consider.

The silver lining is that it has enough net cash at hand. For the recent quarter, it has net cash of around $2.1 billion, higher than the net cash of more than $1 billion. Also it still has not experienced cash burn considering that its operating cash flow is at $900 million to $2 billion per quarter. This gives the company enough buy time to re-assess its strategy and consider alternative options. Investors should stay away from this stock unless there is clear direction from the company. For now, arbitrageurs could only calculate the odds of a break-up or possible sale of the company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.