Research In Motion: What Went Wrong And What Happens Next?

Oct. 4.11 | About: BlackBerry Ltd. (BBRY)

I recently went on a little bit of an expedition involving Research In Motion (RIMM) to find out how Verizon (NYSE:VZ), a retail store, is promoting and selling their available Blackberry phones. For three straight days, I went daily to my local Verizon store to see how the customer service representatives pushed Research In Motion's available phones from the outset of me talking with them. I purposefully acted to the representative as if I needed to buy a phone each day I went. I also got a different representative each time.

While I cannot say how other retail outlets are promoting Blackberry phones, the Verizon employees did not even mention, show, or promote any Blackberry devices on any of my three visits.

Research In Motion used to be one of my favorite stocks to own. The company was growing rapidly and seemed to have the elite smartphone market all by itself at one point. Even though common sense would suggest that competitors would enter the fray and present competition to the Blackberry, it was unfathomable to think that Research In Motion, in just a few short years, would be in the position it's in today.

Looking back at the situation and what has transpired, it actually becomes quite obvious that there were troubling issues going on at Research in Motion. The argument can be made that the success of Apple Inc's (NASDAQ:AAPL) iPhone is what sent RIMM on its crash course. While I would agree that Apple's entry into the smartphone market certainly stiffened the competition for RIMM, it would be wrong to think that Research In Motion could not have kept pace with the advancing technology many other cell phone manufacturers were already doing or initiating. Aside from Apple's iPhone, numerous other cell phone companies such as Samsung (OTC:SSNLF), Motorola (NYSE:MMI), HTC, and others were looking to the future of wireless , while RIMM was sitting idle with its own technology.

Just as Palm did, Research In Motion sat on its laurels when it dominated its target consumer market and overestimated its customers' loyalty to its products alone. The term "Blackberry" was synonymous with a smartphone. It even had the nickname "Crackberry" because of its addictive attraction. The major error RIMM made was sticking to its philosophy that e-mail was more important on a smartphone than navigating the web on one. In the growth days of Research in Motion, these type of phones were a huge hit in the corporate community and business people alike. Yet, by only targeting this audience, RIMM forgot about younger consumers and features that they like on their smartphone.

Research in Motion has never quite recovered from this glaring mistake. It should be noted that RIMM has actually gained market share with younger consumers compared to what it was previously achieving. The question remains, though: is it too little, too late? Here is an article from the Canadian Business in June 2011 worth reading.

Research In Motion notoriously has two co-CEO's, James Balsillie and Michael Lazaridis. Analysts and major holders of the stock have bashed this approach, citing that the two work in tandem together with nobody else around to offer other strategic directions. I tend to agree with the majority that the two co-CEOs harm Research In Motion's business more than helping it.

Anyone who follows Research In Motion's stock knows the beating it has taken. However, when you take into account what RIMM was trading at just a few years ago, it is astonishing. In August of 2008 the stock price was in the $130s. Even though RIMM is a technology stock, and they tend to be lot more volatile than most sectors, this is still a massive dip by any standard.

Research In Motion has continuously disappointed in its quarterly earnings report for about three years in a row now. My concern going forward is what catalyst is going to improve the company's bottom-line numbers, such as sales and revenue? It certainly doesn't appear to be the Playbook, Research In Motion's tablet which has entered the market.

Currently, Research In Motion's stock is trading at $20.50 as of Monday's closing bell. There has been some talk that RIMM could be a possible takeover target. Certainly, the company does own many valuable patents . How valuable is the big question mark. Here is an article putting some concern to actual worth. More recently, Carl Icahn has now been rumored to want to put a stake in RIMM. Icahn did wonders for Motorola Mobility Holdings, Inc. (MMI) shareholders recently by pushing a sale to Google (NASDAQ:GOOG) for $12.5 billion.

With Research In Motion's current market capitalization sitting at a little bit over $10.6 billion, it is unknown what kind of price RIMM could be bought out at-- if at all. Motorola Mobility Holdings, Inc. has some very valuable patents along with the hardware business. I mention Research In Motion's patents and rumored buyout because any investor should still be extremely careful shorting this stock or using put options only. Add to the fact that Carl Icahn may be initiating a heavy stake in them, and you could have a serious problem if you are just short on its prospects.

One type of trade that I am considering placing on Research In Motion is using an Options Strangle (Long Strangle). Essentially, this strategy requires buying both long call options and long put options that are out-of-the-money (OTM) with the same expiration month. It is a neutral strategy that benefits when there is a large price move in the stock. The option strangle that I will purchase involves buying December 2011 $26 call strikes, along with a December 2011 $15 put strikes.

There is considerable downside risk with Research In Motion's stock. However, I also feel that the company could possibly be a takeover target at its current price, or especially if it falls even further. This trade hopes to benefit off of this. I simply do not see the co-CEOs of Research In Motion selling this company at anything less than $30/share, no matter where it is trading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RIMM over the next 72 hours.

Additional disclosure: I will be purchasing a Strangle option strategy on RIMM with December 2011 $26 call strikes, and December $15 strike puts.