Shares of BlackBerry maker Research In Motion Ltd plunged more than 20
percent on Friday on fears that a new fee structure for its high-margin
services segment could put pressure on the business that has set the
company apart from its competitors.
It was the stock's biggest,
single-day, percentage price drop since September 2008. But shares were
still nearly 80 percent above the year's low, which was reached in
September. They started to rally in November as investors began to bet
that RIM's long-awaited new BlackBerry 10 phones, which will be unveiled
in January, would turn the company around.
The services segment
has long been RIM's most profitable and accounts for about a third of
total revenue. Some analysts said there was a risk that the fee changes
could endanger its service ecosystem and leave the Canadian company as
just another handset maker.
The fee changes, which RIM announced
on Thursday after market close, overshadowed stronger-than-expected
quarterly results. The company said the new pricing structure would be
introduced with the BlackBerry 10 launch, expected on January 30.
said some subscribers would continue to pay for enhanced services such
as advanced security. But under the new structure, some other services
would account for less revenue, or even none at all.
Executive Thorsten Heins tried to reassure investors in a television
interview with CNBC on Friday, saying RIM's "service revenue isn't going
He added: "We're not stopping. We're not halting. We're transitioning."
taking over at RIM in January, Heins has focused on shrinking the
company and getting it ready to introduce its new BB10 devices, which
RIM says will help it claw back ground it has lost to competitors such
as Apple Inc and Samsung Electronics.
But the new services pricing strategy came as a shock to markets, and some analysts cut their price targets on RIM stock.
will not be able to sustain profitability by relying on its hardware
business alone, said National Bank Financial analyst Kris Thompson, whom
Thomson Reuters StarMine has rated the top RIM analyst based on the
accuracy of his estimates of the company's earnings.
Thompson downgraded RIM's stock to "underperform" from "sector perform" and cut his price target to $10 from $15.
Research analyst Charles Golvin said the move was likely about
stabilizing market share: "At the moment, they need to stem the
He said the tiered pricing might line up better with RIM's subscriber base as it expands in emerging economies.
Nasdaq-listed shares closed down 22.7 percent at $10.91 on Friday. The
stock fell 22.2 percent to C$10.86 on the Toronto Stock Exchange.
Countdown to launch
success of the BB10 will be crucial to the future of RIM, which on
Thursday posted its first-ever decline in total subscribers. Heins said
on CNBC that the company expected to ship millions of the new devices.
cautioned that this will require heavy investment, which will reduce
RIM's cash position in its fourth and first quarters from $2.9 billion
in its fiscal third quarter. He said, however, it would not go below $2
Still, doubts remain about whether RIM can pull off the
transformation. Needham analyst Charlie Wolf said the BB10 would have to
look meaningfully superior to its competitors for RIM to stage a
Canaccord Genuity analyst Michael Walkley said it was
highly unlikely that the market would support RIM's new mobile computing
ecosystem, and he remained skeptical about the company's ability to
survive on its own.
"We believe RIM will eventually need to sell the company," said Walkley, who cut his price target on RIM shares to $9 from $10.
Equity Research analysts said BB10 faced a daunting uphill battle
against products from Apple, as well as those using Google Inc's Android
operating system, and, increasingly, phones with Microsoft Corp's
Windows 8 operating system.
Baird maintained its "underperform"
rating on the stock, while Paradigm Capital downgraded the shares to
"hold" from "buy" on uncertainty around the services revenue model.
has gone from having one major aspect of uncertainty BlackBerry 10
adoption to two, given an uncertain floor on services revenue,"
William Blair analyst Anil Doradla said.
RIM will have to discount BB10 devices significantly to maintain demand, Bernstein analyst Pierre Ferragu said.
BlackBerry, however, still offers the security features that helped it
build its reputation with big business and government, a selling point
with some key customers.
Credit Suisse maintained its "neutral" rating on the stock, but not because it expected BB10 to be a big success.
"Only the potential for an outright sale of the company or a breakup keeps us at a neutral," Credit Suisse analysts said.
on Friday, ailing Finnish mobile phone maker Nokia said it had settled
its patent dispute with RIM in return for payments. Nokia did not
disclose detailed terms, but said the deal included a one-time payment
to be booked in the fourth quarter, as well as ongoing fees, all to be
paid by RIM.
© Thomson Reuters 2012