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RIM: A Smart Play at $14

As an ex-Blackberry user, I can honestly say that I will never, ever go back. With its technical issues, sad app store, and a user interface that pales in comparison to the iPhone, the Blackberry seems to be special only to those who purchased them five years ago and are now afraid to try something new. Blackberry’s Research In Motion (RIMM) has some dark days ahead.

Fourth Quarter Results as Expected: Dismal

RIM’s fourth-quarter net loss was $125 million. Revenue slid 19% to $4.2 billion. This was way below analysts’ expectations. The company also avoided sharing an outlook. This is a typical response from RIM’s management. Management tends to brush off negativity and keep their chin high. This is not a trait you want to see in your portfolio. A lack of guidance by RIM implies some missing confidence.

RIM’s new CEO, Thorstein Heins, stated the following: “I have assessed many aspects of RIM’s business during my first 10 weeks as CEO. I have confirmed that the Company has substantial strengths that can be further leveraged to improve our financial performance, including RIM’s global network infrastructure, a strong enterprise offering and a large and growing base of more than 77 million subscribers. I’m very excited about the prospects for the BlackBerry 10 platform, which is on track for the latter part of calendar 2012. Notwithstanding these strengths and opportunities, the business challenges we face over the next several quarters are significant and I am taking the necessary steps to address them. In addition to delivering the BlackBerry 10 platform and refocusing resources on RIM’s key opportunities, such as BlackBerry Mobile Fusion and new integrated service offerings, we will also drive greater operational performance through a variety of initiatives including increased management accountability and process discipline. In parallel, we are undertaking a comprehensive review of strategic opportunities including partnerships and joint ventures, licensing, and other ways to leverage RIM’s assets and maximize value for our stakeholders.

RIM also announced that Jim Balsillie, former co-CEO, has resigned from the company’s board, apparently because of disagreements with Heins about the direction of the company.

Is It Really That Bad?

RIM has been falling for months. It used to dominate the smartphone market, especially in office and government environments. Now those professionals are turning to the Apple (AAPL) iPhone. Also stealing market share from RIM is Google (GOOG) with its Android platform which controls almost 50% of the smartphone market. Apple controls 32% and RIM controls an embarrassing 12%.

What used to be an investor’s gem is now an embarrassment. In the past year, shares have fallen over 60%. And in the past four years, market cap fell by over $70 billion. Although there have been numerous management mistakes, its greatest error was underestimating the success of the iPhone and the Android-powered smartphones. By the way, Nokia and Motorola (MMI) also underestimated the success of the two. The touchscreens that Apple and Android offered changed how we would look at smartphones forever.

RIM management also failed to realize that consumers would get used to the lack of a keyboard, instead using a virtual keyboard. RIM thought that its core customers (business customers) would need a keyboard. But they were wrong. Many business customers took to the virtual keyboard very well. Other features that Android phones and iPhones offered while RIM ignored were quick browsers, extensive memory and cameras. Surprisingly, RIM management deemed those features unnecessary.

Nokia Taking the Reins

Nokia (NOK) has struggled to see as much success in the U.S. as it has in other parts of the world. Its new Lumia 900 is promising to change that with help from two partners: AT&T (T) and Microsoft (MSFT).

AT&T is helping launch the Lumia 900 in America. According to AT&T, the launch will be greater than any they have ever done, including that of the Apple iPhone. The company is confident that when people walk into an AT&T store, they will specifically be looking for the Lumia 900.

Microsoft has partnered with the two as a platform provider. By the time of the official launch on April 8, the Lumia is expected to draw plentiful traffic to AT&T stores and make us watch Nokia closely.

Acting Childish

RIM seems to still be basking in its glory days, hosting fancy parties while it struggles, ignoring any sense of doom. The gossip is difficult to ignore. On April 3, a man was stabbed at a party that Blackberry was hosting to celebrate its messenger tool. (Is it really worth celebrating?)

RIM UK tweeted a message stating that a serious incident had occurred and someone had been injured at the party but they could not comment further at the time.

This is not the only recent event that indicates immature behavior. In November, two RIM employees were drunk on an Air Canada flight, forcing it to turn around to China after the employees started acting recklessly. Also, in December, a promotional event in Indonesia led to a stampede, sending several people to the hospital.

What does RIM's future hold?[b][/b]I do not see RIM in any portfolio unless they sell to another company. But who would want to take them over? Possibly a company that is familiar with emerging markets. Blackberry sales are still strong in Africa, the Middle East, and Latin America. The company also has attractive network operation centers responsible for its security features, although not entirely flawless as we saw last year.

Going forward, there are rumors surrounding RIM’s plans to stop developing consumer-focused content and focus instead on working with partners to provide the content. Another rumor is that it is also focusing more on government and business users again, as opposed to individual consumers. There should not be so many rumors. There should only be guidance and direction surrounding the stock that I am going to purchase, especially at the current $14 per share.

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Rating: 2.5/5 (13 votes)

Comments

kfh227
Kfh227 premium member - 1 year ago


RIM’s fourth-quarter net loss was $125 million

Countered with:

RIMs recent quarter showed $861 million in FCF. That's $150 million more than the same quarter last year. The TTM FCF is jsut over $2 billion. Market cap of about $7B. No debt, generates tons of cash. And a 3.5x FCF multiple.

Takeover canddiate? Of course. It owuld take 3.5 years to recoup the investment if it went private. Assuming FCF remains steady.
luishernadez
Luishernadez premium member - 1 year ago
"Assuming the FCF remains steady" is EXACTLY the problem. Most probably it will not remain steady but decline at some rate (maybe a high rate). They have a working capital of around $4 Bill and a EV of around $6,6 to $7,0 Bill. If they don´t consume the WC by losing money, then you just have to cover the diference ($2,5 to $3 bill). That could be covered in 2 years of FCF (maybe) but maybe it could take more like 4 years (depending on the erosion). $ years could be too long. The thing is that I don´t see much of a margin of safety here. It looks kind of tight to me. If they eliminate R&D and Capex they could definitely cover the difference even in 1 year, but then the company would really be in a free fall.
Rajeev M
Rajeev M - 1 year ago
Can anyone please explain what does the writer of the article wants to say. he condemns RIM, its actions, financials and the downward slide on the stock. understood. and then he says, _" Blackberry sales are still strong in Africa, the Middle East, and Latin America". so what are these, not markets or sales points that bring revenues. I am not sure but analysts, including this one, can only think in one box, thats the US. Look out there's a world there. even the market share numbers are not correct. These are only US number....gurrrrrrrrr

Though i fully understand the under-performance of RIM and a slim chance of revival. But with a subscriber base of close to 80 million and FCF, a stronghold in some of the asian/latin american markets, its not wise to discount this company fully
Rajeev M
Rajeev M - 1 year ago
and by the way, Apple market share is not as stated in the article, please stand corrected :Google's Android operating system captured 52.5 percent of the global smartphone market during the third quarter, more than doubling its share from the same time period last year, according todata from Gartner.

"Android benefited from more mass-market offerings, a weaker competitive environment and the lack of exciting new products on alternative operating systems such as Windows Phone 7 and RIM," Roberta Cozza, principal research analyst at Gartner, said in a statement.

Symbian captured the second place spot with 16.9 percent of the global market, but that was down from 36.3 percent last year. Apple's iOS rounded out the top three with 15 percent, down slightly from 16.6 percent.

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