Research in Motion: On Its Deathbed?

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Adib Motiwala
May 23, 2011
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="" valign="bottom">

="" valign="bottom"> Sales

="" valign="bottom"> Op Income

="" valign="bottom"> Net Income

="" valign="bottom"> Diluted EPS

="" valign="bottom"> OCF

="" valign="bottom"> Capex

="" valign="bottom"> FCF

="" valign="bottom"> Shares

="" valign="bottom"> 2002

="" valign="bottom"> 294

="" valign="bottom"> (58)

="" valign="bottom"> (28)

="" valign="bottom"> (0.06)

="" valign="bottom"> 18

="" valign="bottom"> (74)

="" valign="bottom"> (57)

="" valign="bottom"> 471

="" valign="bottom"> 2003

="" valign="bottom"> 307

="" valign="bottom"> (64)

="" valign="bottom"> (149)

="" valign="bottom"> (0.32)

="" valign="bottom"> 3

="" valign="bottom"> (40)

="" valign="bottom"> (37)

="" valign="bottom"> 466

="" valign="bottom"> 2004

="" valign="bottom"> 595

="" valign="bottom"> 78

="" valign="bottom"> 52

="" valign="bottom"> 0.10

="" valign="bottom"> 64

="" valign="bottom"> (22)

="" valign="bottom"> 42

="" valign="bottom"> 502

="" valign="bottom"> 2005

="" valign="bottom"> 1,350

="" valign="bottom"> 386

="" valign="bottom"> 206

="" valign="bottom"> 0.35

="" valign="bottom"> 278

="" valign="bottom"> (109)

="" valign="bottom"> 168

="" valign="bottom"> 594

="" valign="bottom"> 2006

="" valign="bottom"> 2,066

="" valign="bottom"> 617

="" valign="bottom"> 375

="" valign="bottom"> 0.64

="" valign="bottom"> 150

="" valign="bottom"> (179)

="" valign="bottom"> (29)

="" valign="bottom"> 588

="" valign="bottom"> 2007

="" valign="bottom"> 3,037

="" valign="bottom"> 807

="" valign="bottom"> 632

="" valign="bottom"> 1.10

="" valign="bottom"> 736

="" valign="bottom"> (255)

="" valign="bottom"> 481

="" valign="bottom"> 572

="" valign="bottom"> 2008

="" valign="bottom"> 6,009

="" valign="bottom"> 1,731

="" valign="bottom"> 1,294

="" valign="bottom"> 2.26

="" valign="bottom"> 1,577

="" valign="bottom"> (353)

="" valign="bottom"> 1,224

="" valign="bottom"> 573

="" valign="bottom"> 2009

="" valign="bottom"> 11,065

="" valign="bottom"> 2,722

="" valign="bottom"> 1,893

="" valign="bottom"> 3.30

="" valign="bottom"> 1,452

="" valign="bottom"> (836)

="" valign="bottom"> 616

="" valign="bottom"> 574

="" valign="bottom"> 2010

="" valign="bottom"> 14,953

="" valign="bottom"> 3,507

="" valign="bottom"> 2,457

="" valign="bottom"> 4.31

="" valign="bottom"> 3,035

="" valign="bottom"> (1,010)

="" valign="bottom"> 2,025

="" valign="bottom"> 570

="" valign="bottom"> 2011

="" valign="bottom"> 19,907

="" valign="bottom"> 4,639

="" valign="bottom"> 3,411

="" valign="bottom"> 6.34

="" valign="bottom"> 4,009

="" valign="bottom"> (1,040)

="" valign="bottom"> 2,969

="" valign="bottom"> 538

="" valign="bottom"> 2/26/2011

="" valign="bottom"> 19,907

="" valign="bottom"> 4,639

="" valign="bottom"> 3,411

="" valign="bottom"> 6.34

="" valign="bottom"> 4,009

="" valign="bottom"> (1,596)

="" valign="bottom"> 2,413

="" valign="bottom"> 524





The company from my previous article How much would you pay for this company? has been revealed. It is Canadian company Research In Motion (RIMM, Financial), the maker of the BlackBerry line of smart phones and the company that introduced us to smart phones.


RIM at $43.5 is trading at below 7 times trailing earnings, 1 times EV/Sales, 23% earnings yield (EBIT/EV), 7.4 times P/FCF, 5X OCF. The market offers us the company at $19.5 billion.


So we have determined it is statistically cheap on the surface. We also know the past track record of growth and profitability. (Refer to the table above or the previous article.)


Questions regarding RIM are Apples (AAPL, Financial) killer products, the iPhone and iPad, the Android, the lack of good models from RIM, a lower ASP, the supposedly "dead on arrival" PlayBook tablet, the delayed launch of new phones based on QNX Operating System, loss of market share in North America (while growth in emerging markets is conveniently forgotten), and lack of confidence in management.


Recently, RIM management cut guidance for the first quarter ($1.3 to $1.37) lower than $1.47 to $1.55 as previously expected. The shortfall is primarily due to lower shipment volumes of smart phones and lower average selling prices. However, RIM reiterated EPS guidance for the year at $7.5. Analysts have a $6.86 concensus.


If we assume EPS would be 10% below analyst numbers, we arrive at $6.


At $43, RIM is trading at 7 times lowered forward analyst expectations. Even if earnings fall to $4.3 seen in the fiscal 2010 year, RIM would be trading at 10 times earnings.


Is RIM dead? At least that's what Mr. Market is implying based on its market cap.


Disclaimer: I have a long position in shares of RIM at the time of writing this article. My position may change at any time. This is not intended to be used as investment advice or a recommendation to buy /sell shares of any securities discussed in this article. Please do your own research or contact your financial advisor.
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Adib Motiwala is a Portfolio Manager at Motiwala Capital LLC, an investment management firm that manages separate accounts for its clients.