RIM issues shock profit warning

You might have thought things couldn't get worse for RIM, but the BlackBerry maker has sprung another surprise, unexpectedly forecasting an operating loss for its fiscal first quarter.

The company may have to write off as much as $1bn in unsold inventory, according to Bloomberg sources, and has hired banks to advise on "strategic options" - presumably the same set it was said to be examining early in the year, including the sale of key assets including patents, licensing of the new BlackBerry 10 platform, or outright sale.

As RIM's shares fell by as much as 15% on the warning, JP Morgan Chase and RBC Capital Markets were evaluating "strategic business model alternatives", according to the firm's statement, and the ongoing cost reduction program is likely to be stepped up too, targeting savings of $1bn. As many as 2,000 job losses are expected to be announced, perhaps this week, and the number of manufacturing sites is being reduced.

The operating loss would be the company's first since 2004, and would shock even battle hardened RIM shareholders - analyst consensus had foreseen an operating profit of $261m for the quarter, which ends on June 2. The stock had already lost 74% of its value in the past 12 months, before the latest news, in the face of five consecutive quarters of falling sales.

Sources told Bloomberg that RIM's preferred option would be to license BB10, a course already considered by the previous management but reportedly put on hold by new CEO Thorsten Heins. It is increasingly hard to imagine who would need the operating system, however, and if that plan fails, the sources say Heins' next priority would be to find a strategic investor, with full sale of the company not in the plan at this stage.

Whatever the future holds, the profit warning signals that the rest of the financial year will continue to be tough for RIM (if it survives intact at all). Its make-or-break new software platform, BB10, is not due until late in the year and will still have an uphill battle against the dominance of Android and iOS, whose combined share of the smartphone market grew significantly in the first quarter of 2012, according to various analyst studies. The relative invisibility of the attractive and heavily marketed WP7 shows how difficult it will be for RIM to make an impact.

That leaves it heavily dependent on its back end services, particularly the new BlackBerry Mobile Fusion, which brings its email and device management capabilities to non-RIM devices; the potential value of its patents; and some remaining growth areas, mainly in developing economies. However, RIM recently lost the head of sales, Patrick Spence, who was credited with building business in those regions.

"Our financial performance will continue to be challenging for the next few quarters," Heins said in his statement. "The ongoing 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."