Research In Motion: Maybe CEO Should Not Have Said "Death Spiral"

If you're the new guy running a multi-billion-dollar company that analysts say is in a death spiral, you might want to avoid the words “death spiral” in one of your first major press interviews. Yet new Research In Motion

CEO Thorsten Heins was quoted by the

earlier this month saying, “This company is not ignoring the world out there, nor is it in a death spiral.” Up to this point Heins has talked a tough game, highlighting his management team's willingness to work around the clock to fix the company's problems. RIMM has set an aggressive goal of saving $1 billion in operating costs annually while streamlining its products offerings to target the highest end of the consumer market. Heins has also highlighted the company's 78 million subscribers – up a surprising 1 million in the latest quarter. Yet his words and those of other company executives at the company's annual meeting this week did little to stop the company's 95% stock decline since mid-2008. Shares fell an additional 5% the day of the event. There was no mention of any possible bidders or the company's breakup value. No heads rolled on the company's board and the company merely said it plans to add several new board members and has hired a consultant to help recruit candidates. Even long-tenured board member John Richardson also survived re-election despite a negative assessment from proxy adviser Glass Lewis. Worst of all, the company's future is now riding on the delayed BlackBerry 10. It's now expected in the first quarter of 2013, missing the 2012 holiday season entirely. That means no major product launches are planned for the remainder of the year for what was once one of the world's premier consumer product companies. Some back-of-the-envelope math might suggest that in a rational world RIMM's shares should find a bottom sometime soon. The company has about $2.2 billion in cash and investments on hand. Value its patents at $1 billion, and it's easy to justify a valuation of $3.2 billion. That's $6.20 a share, or just about a dollar lower from where the stock currently trades. Consider, this stock was above $100 stock four years ago. Yet here is why those words -- death spiral -- keep coming up in context to RIMM, no matter where it trades: -- Potential cash burning must now be factored in going forward, as the company lost $518 million in its latest quarter. At that burn rate, it could run out of cash in the first half of 2013 – not too long after the planned launch of BlackBerry 10. -- No new devices coming for the rest of the year may be a recipe for losing market share and subscribers. And as for shrinking margins, RIMM cuts prices on its aging phones. -- A strategic buyer could change its value in a hurry. But wouldn't at least one potential buyer surface in the past three years? None are even being suggested, as it's assumed that all of those interested probably have given RMM a look at this point. Perhaps a leveraged partner might be a better suited takeout candidate in a stronger LBO market. -- The company is losing clout.

reported this week that corporate customer are already making contingency plans if the company is not around in the future. That has the potential to hinder corporate sales. -- RIMM is facing new threats. One is demands by carriers to cut its carrier fees; they add up to about $4 billion in annual revenue. Another is potential decline in service revenue. The company disclosed this week that BlackBerry 10 will not utilize its network infrastructure in the same way as past products. That may reduce the amount of services revenue RIMM garners from its users. Services accounted for 36% of RIMM's revenue in the latest quarter. Put it all together, and the conclusion by many analysts and the media is that Heins doth protest too much: A death spiral is solidly in the realm of possibility.