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Research in Motion Chief Executive Officer Thorsten Heins is silhouetted during the BlackBerry World event in Orlando May 1, 2012. Research in Motion is set to launch a new generation of BlackBerry 10 smartphones later this year. (DAVID MANNING/David Manning/Reuters)
Research in Motion Chief Executive Officer Thorsten Heins is silhouetted during the BlackBerry World event in Orlando May 1, 2012. Research in Motion is set to launch a new generation of BlackBerry 10 smartphones later this year. (DAVID MANNING/David Manning/Reuters)

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RIM shares plunge as situation becomes 'increasingly critical' Add to ...

These are stories Report on Business is following Wednesday, May 30, 2012. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.

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RIM sinks deeper Shares of Research In Motion Ltd. plunged today amid the company's rapid fall from grace.

Today's rout follows the announcement late yesterday that RIM expects an operating loss when it releases first-quarter results in late June, followed by several more quarters of sub-par performance.

As Rita Trichur writes in today's Report on Business, the company also hired JPMorgan Chase & Co. and RBC Dominion Securities to help with its strategic review.

It took no time for analysts to begin marking down their target price RIM shares, which are now dangerously close to slipping below $10.

Raymond James analyst Steven Li, for example, slashed his target to $12 this morning, from $15.

What's worse, Mr. Li believes markets are still underestimating the extent to which sales and margins have declined, which poses further risk when RIM reports June 28. He also says there's a risk of another inventory writedown.

"Yesterday morning, we lowered our forecasts for RIM given our concerns on the quarter and how fundamentals were deteriorating," Mr. Li said. "We did not cut enough."

Some observers, of course, are holding out hope that RIM will be acquired, but analysts warn of the uncertainty there.

RIM warned of intense pressure in its announcement late yesterday.

"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," said chief executive officer Thorsten Heins.

"We are continuing to be aggressive as we compete for our customers' business - both enterprise and consumer - around the world, and our teams are working hard to provide cost-competitive, feature-rich solutions to our global customer base."

Mr. Heins went further, warning that "our financial performance will continue to be challenging for the next few quarters."

He did, however, project that RIM's cash position would grow further from the more than $2-billion at the end of its last fiscal year.

And he added the company's global subscriber base has climbed to about 78 million, largely on offshore markets, though he cited the "high churn" in the United States.

RIM's market share in the United States has been eroding amid the popularity of other devices, notably the iPhone from Apple Inc. and smartphones powered by the Android system from Google Inc.

National Bank Financial analyst Kris Thompson was particularly dire in a report titled "RIM blows up in Q1, recovery unlikely; time to sharpen pencils on takeover valuation."

His target is $8 (U.S.), and he projects earnings per share in the current fiscal year of 32 cents, down from $1.

"Buying this stock is like going to the casino," Mr. Thompson said.

He pegged the value of its cash at more than $4 a share, and its intellectual property at somewhere between about $6 to $10 a share.

"If you're feeling lucky, this stock might be worth a dice roll under $10 a share," he said. "We'd still avoid on fundamentals."

For analyst Mark Sue at RBC Dominion Securities, the situation is becoming "increasingly critical." And the coming launch of its BlackBerry 10 offering faces a bigger threat.

"The challenge of attracting (and retaining) customers, enterprises, developers and carriers is intensifying," Mr. Sue said.

"We see RIM losing its most lucrative users (those in the U.S.), which may be difficult to regain even with BlackBerry 10. New international subscribers are price sensitive and may be difficult to retain over time. We believe RIM also needs stabilization in its legacy business as a source of funds to support the changeover to BlackBerry 10"

Spain at the brink Spain continues to insist it will not go the way of Greece, Ireland and Portugal and ask for a bailout. But markets are betting otherwise.

Spanish bond yields spiked again today as concerns over the country's banking system grew, notably where Bankia is concerned.

With Spain in the crosshairs, and continued uncertainty in Greece in the run-up to a mid-June election, the euro zone promises to continue wreak havoc on global markets. The situation grows more dire by the day, along with faith in Europe's leaders.

Today, the European Union moved to ease market fears, proposing that the euro zone set up a "banking union" that would spread the risk throughout the entire 17-member monetary union.

"Without wishing to sound apocalyptic, it does feel as if Spain is gradually shuffling towards the abyss," warned Chris Beauchamp of IG Index in London.

"Yields on Spanish bonds are spiking once again, with the benchmark 10-year now at 6.57 per cent, far too close for comfort to the 7-per-cent ‘bailout’ level," he said in a research note today.

"Investor confidence wanes by the day, and it could only be a matter of time before the Spanish government is forced to ask for financial aid," Mr. Beauchamp added. "This would be an event of a far greater magnitude than the bailouts of Ireland, Portugal and Greece, since Spain’s size means it would exhaust Europe’s financial firepower."

It's no surprise that, also today, a European confidence index slumped this month.

Markets slump Global stock markets sank today, dogged by mounting fears over Spain and China's warning that it plans no further major stimulus measures.

Tokyo's Nikkei lost 0.3 per cent, and Hong Kong's Hang Seng 1.9 per cent. The ugly mood carried into Europe, where markets quickly sank, and then into North America, where the S&P 500 and Toronto's S&P/TSX composite were hit.

Shaw gets newsier Shaw Media is betting big on news, adding a noon news program to its Toronto lineup and introducing extended local newscasts in Regina, Saskatoon and Winnipeg, The Globe and Mail's Steve Ladurantaye reports.

Senior vice-president of Global News and station operations, Troy Reeb, said that by the end of August the broadcaster will have added 40 hours a week of news programming across the network each week.

Shaw believes it can steal market share from the all-news networks offered by the Canadian Broadcasting Corp. and CTV.

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