Research in Motion (RIMM) took off this month on a 50% tear, hitting a peak of $12/share before settling down closer to $10 recently, all on speculation about Blackberry 10, a product that will hit the market at the end of January.
The idea is that this Unix-based smartphone can take some serious market share from iOS and Android, owing to RIMM's history as an enterprise leader.
Seen from a pure tech perspective, there is something to that. Blackberry 10 is based on QNX, which I have been following for my entire career as a tech reporter. QNX has a long history of getting to a party just after most of the guests have left. But its owners finally made a business out of it by running it as an embedded system, written directly onto silicon. It has actually been designed into over 200 different cars, for things like telematics.
What makes QNX interesting is that it's run as a micro-kernel, handling simple things like scheduling and interrupts, while everything else runs as a user process. There are no device drivers, as with Windows, so applications can boot up quickly. This also lets them bring their own security to the party, so if you have a secure application you can control this effectively.
The Crackberry Web site features pictures of Asian developers busily coding for the new platform, and acting enthusiastic, but the fact is that Blackberry 10 development has to start from scratch. Again, there are advantages to this in the enterprise space, especially in enterprises demanding security, but many of these customers have been rushing toward the iPhone and Android all year long and you have to wonder how many want to come back and re-develop for the new platform.
So why is RIMM suddenly hot? At its present valuation of $5.67 billion, you're paying about 30 cents per dollar of revenue, and if you take out the cash it's under a quarter. But you're not going to see that cash - it's being burned on the new platform. So what you're really buying is a hope.
What is the hope?
Well, consider the size of the market. About 1.6 billion units/year, 400 million sold every quarter. That's 4 million sold just to get a 1% share of the market. Even a niche product - and Blackberry has to be considered a niche hopeful - would have sales of 16 million units/year Then there are the enterprise apps that would be built from that. If you're taking in $200 per phone, that's a minimum revenue of $3.2 billion. If it's sustainable and growing, it's a real business. As an enterprise phone company, RIMM could then be attractive as an acquisition target, perhaps by a Chinese company.
But all this is hope, and hype. It's not reality. We don't know if Blackberry 10 can achieve even that modest goal. You can trade hype, but don't invest in it. I'd wait to see this phone and see how it does before investing a dime in RIMM, and if I were going to trade it from here - not that I'm going to do so - it would be on the short side.