RIM Falls Below Book Value for First Time

By Hugo Miller and Matt Walcoff - Nov 3, 2011 3:24 AM GMT+0700

Research In Motion Ltd. (RIM)’s stock fell below its book value for the first time in nine years, a signal investors consider the BlackBerry maker to be worth less than the net value of its property, patents and other assets.

RIM fell 2 percent to $18.91 at the close in New York, below the book value per share of $18.92 at the end of last quarter, according to data compiled by Bloomberg. Book value comprises a company’s assets including cash, inventories, real estate and intellectual property minus its liabilities.

“The market has no faith in its current model, that is what the market is telling you,” said Neeraj Monga, an analyst at Veritas Investment Research Corp. in Toronto. Monga, who has a “sell” rating on RIM, says there’s a 50 percent chance the stock will drop below $10 within 12 months.

RIM, which helped create the smartphone market a decade ago with its first e-mail device, is struggling to compete against Apple Inc. (AAPL) and devices that run Google Inc. (GOOG)’s Android software. Its market-share decline has put pressure on RIM to shake up management and prompted investors such as Jaguar Financial Corp. (JFC) to call for RIM to divide into separate companies, seek a merger or sell itself.

Asset Liquidation

If a private-equity investor were interested in buying RIM, book value would be a useful indicator to gauge the company’s worth if the buyer then sold the assets, said Matt Thornton, an Avian Securities LLC analyst in Boston.

“It really comes into play for somebody looking for downside protection,” said Thornton, who rates RIM “neutral.” “If we liquidate or sell off the assets, what’s our downside protection, that’s when it becomes a more meaningful metric.”

The Waterloo, Ontario-based company’s U.S. market share sank to 9.2 percent in the third quarter from 24 percent a year earlier as consumers opted for Apple’s iPhone and Android phones from Samsung Electronics Co. and HTC Corp. (2498), according to research firm Canalys.

RIM posted its first quarterly revenue decline in nine years in September, and is struggling to move its BlackBerry lineup onto a new operating system and reignite interest in its PlayBook tablet computer.

The stock had dropped 67 percent this year, cutting RIM’s market value to $9.91 billion. RIM had a book value of $9.92 billion on Aug. 27, the end of its last quarter. Major investors who have sold all their shares in recent months include Brookside Capital Investors Inc., Greystone Managed Investments Inc., Janus Capital Management LLC and Montrusco Bolton Investments Inc., according to Bloomberg data.

Former Leader

John Goldsmith, a money manager with Montrusco in Toronto, said the declines show RIM has lost its competitive advantage.

“RIM was a market leader in terms of smartphones,” he said. “There are a lot of guys out there able to commercialize a product at a significantly lower cost.”

RIM last traded below book value in 2002, when it was losing money. The company earned $329 million, the least in four years, in the quarter ended in August. RIM shares peaked at 24.3 times book value in November 2007.

The MSCI World Information Technology Index trades at 3.2 times book value, with 18 of 147 of its stocks, including 13 Japanese companies, below 1. RIM’s rival Apple costs 4.8 times book value.

Analysts estimate RIM’s book value will rise 7.7 percent to $20.38 a share in the quarter ending this month, according to the average of seven forecasts in a Bloomberg survey.

Fighting Nokia

Shares of Nokia Oyj (NOK1V), which has also been losing smartphone market share, traded briefly below book value in August and now trades at about 1.4 times that level. Nokia said it would shelve its Symbian operating system in February and struck a deal with Microsoft Corp. (MSFT) to build handsets on its Windows Phone platform to try to regain market share from Apple and Google.

Nokia Chief Executive Officer Stephen Elop told Bloomberg News yesterday that he plans to introduce Windows phones with multiple U.S. carriers in early 2012. RIM had said that it planned to have the first BlackBerrys built on its new BBX platform early next year. However, co-CEO Mike Lazaridis didn’t reiterate that goal at a BlackBerry conference last month in San Francisco, and analysts say those new phones may come too late.

Apple and Google are the dominant smartphone platforms and there is only room for one more, said Veritas’s Monga. When Nokia was reorganizing, RIM had its chance to establish itself as the third. It may have lost the opportunity, he said.

“Eighteen months ago, RIM was fighting but had a fighting chance,” he said. “Now, the problems RIM has on its software platform seem to be insurmountable.”

To contact the reporters on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net; Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net