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RIMM Is a Classic "Cigar Butt"

December 02, 2011 | About:
matsandalex

matsandalex

9 followers
I previously questioned Prem Watsa's investment in Research In Motion (RIMM). Although Watsa is an accomplished investor, one cannot use traditional metrics when analyzing tech companies. Tech companies are not like retail companies or insurance companies in that obsolescence is guaranteed.

"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."

Yesterday, RIMM announced another write down and revised sales guidance.

The good news is that revenue will still be $5.3 billion to $5.6 billion and the company will ship 14.1 million phones. In addition, the company is taking a $485 million pre-tax write down in the November quarter for excess Playbook Tablet inventory. RIMM is writing off about 60% all of the tablets that are glutted in the sales channel. In other words, the write-off and pain to shareholders may have been taken this quarter.

However, RIMM is still a "cigar butt" investment with only a few puffs left. The technology is obsolete, management is in a chaotic state, and corporations are starting to migrate towards the iPhone.

RIMM has lost the edge in terms of security. IT departments at major corporations (25,000+ employees) are starting to allow Androids or iPhones. There is no longer a belief in the corporate world that RIMM is the only company with secure email access.

Subsequently, RIMM shipments in 2013 might only be 40 million units which would mean that the company would struggle to even make $2 in EPS.

Rating: 2.9/5 (18 votes)

Comments

Topwine
Topwine - 2 years ago
What do you think is the avg accuracy of analyst's predictions 2 year out ?

Please leave your comment:


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