As most investors have piled out of Research in Motion (RIMM, Financial) in recent months, one value investor has been scooping up shares. Prem Watsa, the famed manager at Fairfax Financial now has a major position in RIMM.
As of July 1, 2011, RIMM was the fifth largest position at the company and 8% of the portfolio. Watsa tripled his position in the last quarter. This has led most technology analysts to ask “why?”
First of all, Prem Watsa’s track record over the last two decades has yielded some high profile predictions including the crash of 1987 and the Japanese collapse of 1990. Prior to the 2008 meltdown, Watsa purchased $341 million of credit default swaps that swelled into $2 billion after the mortgage finance crisis nearly sunk the entire U.S. financial system.
Is the “Canadian Warren Buffett” making an intelligent wager on the future of RIMM?
Although RIMM has a miniscule P/E ratio and a strong balance sheet, it is not a typical Watsa investment. Watsa excels at macro calls and he is most likely missing out on the serious technological problems at RIMM.
A recent article had some scathing remarks from former RIMM insiders about the technological obsolescence of their product offerings.
“Back a handful of years ago, if someone had a phone at work that wasn’t a BlackBerry they paid for it,” another executive who no longer works at Research In Motion said. “I was at a Fortune 500 organization a few weeks ago, and people were carrying a corporate issued BlackBerry in their left pocket and their own personal iPhone in the right pocket.” He continued, “The fact that people are spending their own money to buy the iPhone, when their company is giving them a ‘free BlackBerry’ sends quite a message to RIM,” says one of our sources.”
As one reads comments from some of the multitudes of executives that have jumped ship, it becomes apparent that RIMM is a technological “has been.” The key question that I always ask RIMM bulls is whether they know anyone who has made the switch from an iPhone to a Blackberry. The answer is always a resounding no. RIMM has simply been unable to understand what the consumer market wants in a product.
The article continues:
“When you hear Mike talk about the latest and greatest, it’s been the same thing for ten years: security, battery performance, and network performance. RIM has positioned battery life and network performance for years. People are not concerned with iPhone battery life,” one source told me. Network performance, to Mike, trumps any innovation a device like the iPhone offers. “Mike is convinced people won’t buy an iPhone because battery life isn’t as good as a BlackBerry,” a different source said. Mike apparently is in disbelief that people can use over 15GB of data on their iPhone and Android devices, and he feels that people will buy smartphones based on network efficiency, even though carriers with tiered data plans in developed markets love customers who use monstrous amounts of data.”
Over the last few years, the bears have been right on the fate of Research in Motion. Most likely Prem Watsa will learn the hard way about the difficulty of investing in tech hardware companies. Watsa will most likely see that companies like RIMM cannot be analyzed by using a simple Graham Dodd method because technology changes at an exponential pace. Thus, tech investors must consult with the top tech analysts in order to get ahead of the investing curve.
As of July 1, 2011, RIMM was the fifth largest position at the company and 8% of the portfolio. Watsa tripled his position in the last quarter. This has led most technology analysts to ask “why?”
First of all, Prem Watsa’s track record over the last two decades has yielded some high profile predictions including the crash of 1987 and the Japanese collapse of 1990. Prior to the 2008 meltdown, Watsa purchased $341 million of credit default swaps that swelled into $2 billion after the mortgage finance crisis nearly sunk the entire U.S. financial system.
Is the “Canadian Warren Buffett” making an intelligent wager on the future of RIMM?
Although RIMM has a miniscule P/E ratio and a strong balance sheet, it is not a typical Watsa investment. Watsa excels at macro calls and he is most likely missing out on the serious technological problems at RIMM.
A recent article had some scathing remarks from former RIMM insiders about the technological obsolescence of their product offerings.
“Back a handful of years ago, if someone had a phone at work that wasn’t a BlackBerry they paid for it,” another executive who no longer works at Research In Motion said. “I was at a Fortune 500 organization a few weeks ago, and people were carrying a corporate issued BlackBerry in their left pocket and their own personal iPhone in the right pocket.” He continued, “The fact that people are spending their own money to buy the iPhone, when their company is giving them a ‘free BlackBerry’ sends quite a message to RIM,” says one of our sources.”
As one reads comments from some of the multitudes of executives that have jumped ship, it becomes apparent that RIMM is a technological “has been.” The key question that I always ask RIMM bulls is whether they know anyone who has made the switch from an iPhone to a Blackberry. The answer is always a resounding no. RIMM has simply been unable to understand what the consumer market wants in a product.
The article continues:
“When you hear Mike talk about the latest and greatest, it’s been the same thing for ten years: security, battery performance, and network performance. RIM has positioned battery life and network performance for years. People are not concerned with iPhone battery life,” one source told me. Network performance, to Mike, trumps any innovation a device like the iPhone offers. “Mike is convinced people won’t buy an iPhone because battery life isn’t as good as a BlackBerry,” a different source said. Mike apparently is in disbelief that people can use over 15GB of data on their iPhone and Android devices, and he feels that people will buy smartphones based on network efficiency, even though carriers with tiered data plans in developed markets love customers who use monstrous amounts of data.”
Over the last few years, the bears have been right on the fate of Research in Motion. Most likely Prem Watsa will learn the hard way about the difficulty of investing in tech hardware companies. Watsa will most likely see that companies like RIMM cannot be analyzed by using a simple Graham Dodd method because technology changes at an exponential pace. Thus, tech investors must consult with the top tech analysts in order to get ahead of the investing curve.
