Is Armageddon Approaching For RIM?

Shares of Research in Motion (NASDAQ:RIMM) were on a seesaw on Tuesday as word went around that the company was laying off 38 percent of its staff this year and may take a write-down to cover unsold inventory. Shares of RIM were also halted around the close of markets on Tuesday as the company predicted an operating loss in the first quarter and said it would hire bankers to review its options. Shares of RIM are now down over 9% in early morning trading Wednesday.

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“The on-going competitive environment is impacting our business in the form of lower volumes and highly competitive pricing dynamics in the marketplace, and we expect our Q1 results to reflect this, and likely result in an operating loss for the quarter,” chief executive Thorsten Heins said.

The company will hire JP Morgan Securities (NYSE:JPM) and RBC Capital Markets to help it review its business and financial performance and suggest opportunities including leveraging the BlackBerry platform through partnerships, licensing opportunities, as well as business model alternatives.

Reuters had earlier reported that RIM was likely to cut its 16,500-person workforce by 6,500 by early next year. Bloomberg also reported that “stockpiles of BlackBerry smartphones and PlayBook tablets have swollen by two-thirds in the past year because of slumping sales, raising the chances of the company’s third writedown since December.”

In-house supplies have reportedly grown 18 percent. Veritas Investment Research analyst Neeraj Monga told Bloomberg that the company was more likely to record another quarterly expense next month to account for the inventory’s declining value.

RBC Capital’s Mark Sue also expected a write-down. “Weak gross margins and inventory writedowns are possible as RIM cuts prices to clear products through the channels,” he wrote in a note to investors. “Gross margins may decline with lower pricing on both devices and RIM’s service fee. We expect 39.2 percent gross margins Q1, down 60bps Q/Q and 470bps Y/Y. Device price cuts could also lead to another inventory writedown Q1.”

RIM’s global smartphone industry market share fell by more than half to 6.4 percent last quarter, according to research firm IDC. The share of Google (NASDAQ:GOOG) Android phones has jumped to 59 percent, while Apple’s (NASDAQ:AAPL) iOS operating system made up 23 percent.

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