On June 23, 2008, Research in Motion (RIMM) stock established an all-time high at $147.50. A 2008 photo featuring President Barack Obama and his trusted BlackBerry device captured the apex of the Research in Motion revolution. The BlackBerry was then an indispensable, yet chic tool for the IT professional, corporate executive, and political elite. The proud workaholic reaching for his BlackBerry QWERTY keyboard to fire off emails at midnight then emerged as a sign of the times. At the time, BlackBerry executives regrettably dismissed the Apple (AAPL) iPhone as an irrelevant trinket. The Verge writer Jesse Hicks reported that Research in Motion built its empire according to the specifications of electrical engineers, rather than the alleged whims of consumer sentiment.
Ironically, it is this very same iPhone platform that has reordered the consumer electronics market, and driven Research in Motion towards the brink of bankruptcy. Over the past 180 days, Research in Motion shares collapsed towards a 52-week nadir at $6.22, before rebounding sharply to close out the January 28 trading session at $16. Wall Street speculators have bid up RIM shares, largely in anticipation of a successful January 30 BlackBerry 10 launch. Without the help of technocrat Main Street and office park buying interest, however, prospective investors will quickly discover that RIM stock is a losing bet.
In 2008, Research in Motion controlled roughly half of the U.S. smartphone market. Today, Research in Motion is literally battling for survival at its own Waterloo. Yes, the collapse of the RIM Empire is largely due to the arrogance of an executive suite that dismissed the moxie and toughness of rival firms. On January 3, 2013, research firm comScore released a report detailing November 2012 mobile market share. At the bottom of the list, Research in Motion - BlackBerry, Microsoft (MSFT) - Windows, and Nokia (NOK) - Symbian operating systems now square off over a meager and combined 11% of total U.S. smartphone subscribers. Today's bottom feeders have failed to build out popular and user-friendly ecosystems for telecommunications, entertainment, computing, and audio-visuals.
The Apple iOS and Google (GOOG) Android platforms are separate wings of a duopoly that dominates consumer electronics, and in turn, smartphone sales. Google Android and Apple iOS operating systems power respective 54% and 35% shares of the U.S. smart phone market. As original equipment manufacturers, Samsung and Apple together control 45% of this market subset. The Google, Apple, and Samsung brands are all notable for minimalist design, yet powerful performance. Nokia, with its latest Lumia 920 phone, is attempting to mimic this very same playbook and pander to the popular culture set. For Research in Motion to compete, it will be literally forced to head in the opposite direction. The BlackBerry 10 platform must be suitable for the technical geek, rather than the teenage girl.
BlackBerry 10 Technocrats
The shift away from BlackBerry was made complete when IT professionals began enabling employee access to work networks through personal devices. Corporate employees are now likely to carry one rarely used BlackBerry smart phone for work, alongside one Apple iPhone for social and entertainment purposes. Employees will always fear espionage from the management suite. At worst, an employee will be terminated for accessing inappropriate sites and communications through work-provided devices and networks. The BlackBerry 10 will fail if Research in Motion rainmakers cannot successfully navigate awkward negotiation sessions between IT professionals demanding performance and security, financial managers hell-bent on slashing costs, and the implicit need for employee privacy.
The BlackBerry 10 operating system will be released in conjunction with two separate X10 and Z10 phones. The X10 features the traditional QWERTY keyboard, while the Z10 is fully touch screen operational. According to Fox News, BlackBerry 10 phones offer 1,280 X 762 pixel resolution, 2GB of RAM, and two separate cameras. For networking, users can navigate the BlackBerry Hub application for integrated email, social networking, and web browsing features. Rabid BlackBerry, or Crack Berry, enthusiasts will now manage the freedoms of separate business and personal profiles. Behind this effective firewall, IT managers can write specific applications only accessible to employees. An apparent 1,600 different corporations have already signed up for the BlackBerry 10 training program.
Outside of the workplace, Research in Motion and Visa (V) executives also negotiated a deal to transform the BlackBerry 10 device into a virtual wallet. Research in Motion, with its reputation for security, may eventually emerge as a major player within the near-field communications (NFC) marketplace. As always, Research in Motion will attempt to butter its bread upon the functional needs of the technocrat. This unique market segment, however, is too small to drive real bottom-line growth.
The Bottom Line
Despite the build up to this BlackBerry 10 launch, the latest installment out of the Research in Motion product portfolio is shaping up as an inevitable flop that will harm shareholders. In terms of timing, the BlackBerry 10 launch falls outside of the critical holiday season, during which time rival Nokia already made a splash to capture share behind the Lumia 920. Without Main Street buzz, however, Research in Motion executives will find it difficult to attract and maintain institutional demand. A failed BlackBerry 10 launch will not drive the Research in Motion bottom line back into the black. On January 22, Research in Motion shares surged by 13% to close out the session at $17.90. Speculators bid up the stock in response to a report out of headquarters that RIM was open to strategic review, which means that separate business units could be licensed or sold off to the highest bidder.
Conservative RIM investors should now consider liquidating positions and taking profits, before balance sheet metrics are significantly written down. Valuations for smart phone patents, goodwill, and intangible assets peaked during summer 2012, when Google closed out its $12.5 billion acquisition of Motorola, before Apple and Samsung took their theater of the patent war to the courts. Earlier this month, Research in Motion paid out a $65 million settlement to Nokia, in what Roberto Baldwin and Wired haughtily dismissed as the "saddest slap-fight of a patent war in recent memory."
On December 20, 2012, Research in Motion reported on its third quarter fiscal 2013 results. For the three months ended December 1, 2012, RIM posted a scant $9 million in net income, which is somewhat of a welcome relief to the $753 million in losses incurred over the prior six months. RIM executives now manage a $12.6 billion balance sheet, which effectively overlaps $8.2 billion worth of market capitalization. Broken down further, the Research in Motion balance sheet includes $12.6 billion worth of assets, over top of $3.3 billion in total liabilities. Real liquidity, of course, is somewhat separate from $9.3 billion in book value.
RIM now operates with $2.7 billion in cash to back $2.5 billion in accounts payable and accrued liabilities. To improve upon this cash position and avoid default, RIM will be forced to aggressively collect upon $2.5 billion in receivables, while also working off the remainder of $457 million worth of inventories over the next 18 months. At the same time, the BlackBerry 10 product launch is likely to drain roughly $300 million in net cash for sales, marketing, and administration costs during Q4 2013. A product flop would certainly degrade the financials of RIM's now pristine balance sheet.
Last quarter, RIM reported $3.1 billion worth of net intangible assets on the balance sheet. In theory, all assets that cannot be leveraged for a profit will eventually depreciate towards zero. Research in Motion is now a strong sell, as a weak BlackBerry 10 launch would add to losses, precipitate intangible asset write downs, and curtail the buying interest of prospective takeover firms. RIM shareholders should close out positions and take profits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.