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The morning after, and RIM still looks like a bad bet

It's another tough day for Research In Motion as investors fully digest the extent of the company's problems. The prognosis: things look pretty ugly.

Research in Motion

It's another tough morning for Research In Motion, with shares falling more than 11 percent after the company warned things weren't getting any better soon.

Yesterday, RIM posted significant declines in revenue and profit in the fiscal third quarter, and provided a lackluster forecast for the following period. More importantly, executives admitted that their next-generation phone, running on the BlackBerry 10 platform, wouldn't come out until late next year--a blow to those who had pinned their hopes on RIM mounting a comeback in the next few months.

After an evening of processing the news, analysts came out and savaged the company.

"Management remains in complete denial of the situation and we believe the company could start losing money and burning cash by the end of next summer," said Pierre Ferragu, an analyst at Sanford Bernstein, in a research note.

Robert W. Baird analyst William Power said RIM's U.S. business was "in freefall."

RIM shares recently fell $1.70, or 11.2 percent, to $13.43.

Co-CEOs Mike Lazaridis and Jim Balsillie both insisted that their plan to transition to BlackBerry 10 will ultimately put them in a better position down the line. In the meantime, the company plans to spend more on promotions, advertising and special offers to keep the BlackBerry brand alive and products moving.

Balsillie warned, however, that the added promotional activity would further cut into earnings next year.

It's also unclear how effective that promotional effort. RIM fired a major salvo this summer with the launch of multiple products. Aside from the flagship Bold, none of the other phones have really made much of a dent in the market.

Given the sheer number of smartphones that launch each year, if a device doesn't come out with a bang, there's little hope of sales picking up in the weeks and months after. So even if RIM throws money and advertising at its product lineup, it may be ineffective against the horde of new phones coming out over the next few months.

Likewise, when RIM's BlackBerry 10 phone finally comes out, it will compete against a next-generation iPhone, likely powered by LTE, an army of high-end Android phones, as well as an array of Windows Phone devices. Lazaridis said the company is waiting for a dual-core, LTE-integrated chip to come out in the middle of next year; products with quad-core chips are already coming out for early next year.

While RIM remains committed to the PlayBook tablet--essentially its only lifeline to the future BlackBerry 10 platform--analysts are skeptical. The company was able to move its tablets only after significant discounts, which brought the device down to $99 for RIM employees, and $199 during Black Friday specials. RIM can't continue to take a massive loss on each device, yet it can't compete on the high end against the iPad.

"We're still negative on RIM's position as we see little room to carve out a profitable niche between lower-priced competition such as Amazon's $200 Fire and Apple's iPad leadership," said Ittai Kidron, an analyst at Oppenheimer.