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Adib Motiwala
Adib Motiwala
Articles  | Author's Website |

Research in Motion: On Its Deathbed?

May 23, 2011 | About:
Sales Op Income Net Income Diluted EPS OCF Capex FCF Shares
2002 294 (58) (28) (0.06) 18 (74) (57) 471
2003 307 (64) (149) (0.32) 3 (40) (37) 466
2004 595 78 52 0.10 64 (22) 42 502
2005 1,350 386 206 0.35 278 (109) 168 594
2006 2,066 617 375 0.64 150 (179) (29) 588
2007 3,037 807 632 1.10 736 (255) 481 572
2008 6,009 1,731 1,294 2.26 1,577 (353) 1,224 573
2009 11,065 2,722 1,893 3.30 1,452 (836) 616 574
2010 14,953 3,507 2,457 4.31 3,035 (1,010) 2,025 570
2011 19,907 4,639 3,411 6.34 4,009 (1,040) 2,969 538
2/26/2011 19,907 4,639 3,411 6.34 4,009 (1,596) 2,413 524

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), 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 Apple’s (NASDAQ:AAPL) 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.

About the author:

Adib Motiwala
Adib Motiwala is a Portfolio Manager at Motiwala Capital LLC, an investment management firm that manages separate accounts for its clients.

Visit Adib Motiwala's Website

Rating: 2.7/5 (21 votes)


Pballard - 7 years ago    Report SPAM
I am long RIMM and taking the pain, although as a recent buyer, not as much pain as others. It will be an interesting year for the company. It has by far the most secure network, the best keyboard smart phone, and there is a significant amount of inertia in businesses. I have heard of big companies starting to support iPhones. I have not yet heard of a big company that has also dropped Blackberrys. As cool as the iPad is, it’s still a toy. There are a lot of people out there who get an iPad, use it for a month, and then go back to their laptops. If RIMM can get the Playbook to the point where it can market it as the tablet computer for business and tie it into existing enterprise agreements with corporate customers, it could have decent shot at a rebound. So maybe the company is in a permanent slide—tough to know. I am going to ride it out and see what happens.

Adib Motiwala
Adib Motiwala - 7 years ago    Report SPAM
I was having lunch with a collegue who has the BlackBerry Storm. It has the touch screen and physical keyboard both. He absolutely loved it, despite my comments that I had reviews to the contrary. Anyways, thats just one opinion.

An interesting thing about the RIMM phones is that they connect to your office applications such as Messenger. So, he was able to use the Corporate Instant Messenger to contact me. I don't believe such functionality is supported yet on IPhone.

Rgosalia - 7 years ago    Report SPAM
I have some anecdotal evidence supporting the popularity of BlackBerry in India. I don't know what % of revenue RIMM derives from India, so it may or may not be relevant to the investment thesis.

On a recent trip to visit my family back home, I wanted gift my nephews (both just graduated high school). I offered to buy them an iPhone (apparently it's possible to unlock them for use in India using some hack software). However, they denied my offer in a haste and were more enthusiastic about a BlackBerry phone instead. I asked them why they wanted a BlackBerry (which I perceived more as a phone popular among corporate users). They replied that all their friends were on the BB network.

Then, the other thing I noticed is that almost 90% of my family and friends that are using a smartphone are using a BlackBerry. The reason cited is the low price relative to iPhone. The keyboard is also an attractive feature because a lot of communication in India among the people I know (and in a metropolitan like Mumbai) gets done using text message. Furthermore, the data network is slow - so having a million apps on iPhone is not as appealing as it is in the US.

If there are studies that one can find about consumer choice of a smartphone in an emerging country like India it could make an interest read in my opinion.

Adib Motiwala
Adib Motiwala - 7 years ago    Report SPAM

I had the same experience in India on a recent trip in March-April 2011. Kids, teenagers, adults were on BlackBerry devices. They have something called the Blackberry Messenger ( like an instant messgenger). I am not sure if there is a seperate charge for it $5/month for unlimited messaging on it. The thing is people can be in any part of World using BlackBerry device and you can instant message them. So, a lot of folks use that instead of paying for SMS. People send voice /video recordings also using it. It is fast and efficient.

Also, agree on the pricing. We in the US may be thinking the IPhone is costing us $200. However, the real price is more like $600 or so as the costs are subsidized by the Network companies who lock in the users for a 2 year contact. In India and other places, you pay full price of $600 or so. Compared to that, you can get a RIM phone for $200-$300. And then add in the network effect, better battery life and low bandwidth consumption.

In fact, the numbers also point to the same thing. While RIM has been steadily losing market share in the US, it has been gaining market share in Asian markets. Guess at whose expense. I would argue it is Nokia.

- Adib
Gendibar - 7 years ago    Report SPAM
Your analysis is missing important pieces. There is no discussion of the June release for a number of RIMM products. This will have a boost for the upcoming quarters. You have not presented any convincing information that RIMM will not reach their yearly forecast numbers.

The revenue projections for RIMM look good. They have made changes in the Marketing organization and I expect that Roger Baxter vice-president of brand and marketing will be making moves to shake things up. The launch of the Playbook was at best lack luster from a MARCOM perspective. The failure to get the agreements worked out with AT&T and Verizon prior to the launch was a mistake.

This product already has certain differentiators against iPAD and I expect that those will continue to increase in the next release while it closes the gap on features and capabilities.

I am a recent buyer looking for good things to happen in the short term.
Adib Motiwala
Adib Motiwala - 7 years ago    Report SPAM
Thanks. You are right. This post does not have much of analysis just some basic information and the issues around the company. Thanks for providing your insights.
Jimcmf - 7 years ago    Report SPAM


Jimcmf - 7 years ago    Report SPAM
All the analysts have no clue how amazing RIM is. So I will help you understand something:

- RIM has beaten its earnings year over year, and it will continue to do so.

- The PlayBook is selling better then anticipated. ( I have one ... it's the BEST tablet on the market today)

- Tablets with QNX will be installed in cars beginning in 2013 (straight into the dash) which will operate your GPS, stero, email, phone, web use, car cameras, and will be the brains of your car.

- Quality apps being installed daily. (I'm hooked on a number of them. Try 'Bix') 250,000+ by the end of the year.

- QNX to run NEW BlackBerry phones. Awesome!

- Ten inch PlayBook to come in time for Christmas.

- 3G and 4G on the burner. Coming VERY soon.

- Blackberrys use two thirs less bandwidth then other phones. Why would a carrier not want to suggest them?


- Push Email

- Security Encription

- It's Canadian! Apple is American. Who would the people of the EAST rather support?

- India LOVES RIM (1 Billion+ people) [Notice how the security issue thing has vanished] ;-)

- Asians and Chinese loves the BB keyboard. They need up to date BB. All the time!

- NFC will require very tight security to run cc payments. Guess who will be charge?

Must I say more?

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