5 Reasons Research In Motion Could Fail In 2012

| About: BlackBerry Ltd. (BBRY)

The last three months have not been kind to Research in Motion (RIMM). RIMM has declined 15% over that period and a staggering 63% year-to-date as it faces ever-increasing competition from Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG). This is a company that was once a Wall Street darling and could do no wrong. Its past reputation appears to have given the company more credibility that it deserves because there are no positives on the horizon for the company. Furthermore, as with Netflix (NASDAQ:NFLX), another company I have been very bearish on, management is a mess and has lost direction. I am going to stand firm and say that you cannot invest in Research in Motion besides speculating on it being a takeover target. Below are five recent developments that confirm my opinion that Research in Motion is heading for oblivion.

6 Month RIMM Chart

Playbook Is a Disaster

There is no way to sugarcoat this one – the Playbook has failed to deliver in everyway. Not only have shipments been abysmal but now management has stated that the tablet will not have BBM or a native email client until February 2012 at the earliest. Playbook shipments (not even sales!) were disappointing from day one but they have only further deteriorated. I cannot envision RIMM abandoning the Playbook like Hewlett-Packard (NYSE:HPQ) did with the Touchpad but the “buy two get one free” deals are not encouraging signs. To quote a commenter at TechCrunch, “There is this thing that I don't need or even want. They want me to buy two of them, and then I will have three of this thing I don't need or want.” Has anyone ever seen anyone use a Playbook in the wild? I have seen them in Bestbuy and other retailers but I have never seen anyone actually use the device.

What Did One Blackberry Say to the Other? Nothing

Everyone knows that Research in Motion had a massive outage right as the iPhone 4S went on sale so I will not belabor the point. The primary reasons why people still use Blackberries are the good battery life, physical keyboard, and reliable push email service. If you take away the reliability you are left with a QWERTY keyboard that can input text but send it nowhere.

RIMM did offer a $100 bundle of apps as a way to apologize but it seems too little too late. Users are not too happy and multiple class action lawsuits have been initiated accusing “breach of contract, negligence and unjust enrichment.” There have been service outages in the past but the duration and timing of this disruption truly hit a nerve with Blackberry users.

Trade-Ins Point to Exodus

Popular trade-in website Gazelle has reported that trade-ins of Blackberries nearly doubled leading up to the iPhone 4S. There is a limit to how long you can ignore your subscriber base’s wants and desires until they finally leave.

iMessage is a BBM Killer

All iOS5 devices now come standard with iMessage which is akin to RIMM’s BlackBerry Messenger (BBM). This allows users of Apple (AAPL) products to send text messages for free much like their Blackberry brethren have been doing for years. This is another way in which Apple has taken away one of the strongest selling points from a competitor’s product. When the iPhone was new, people were quite hesitant to switch because they had so many friends with BBM that they did not want to leave the communication circle; now with cross-platform WhatsApp, Google Chat, and iMessage another compelling reason to stick with RIMM’s legacy product has been effectively eliminated.

Ignoring The Jaguar

Jaguar Financial has expressed interest in taking drastic action with RIMM to reverse the company’s downward spiral. SA contributor Benzinga has detailed why RIMM’s neglect of Jaguar is a mistake and I tend to agree.

For Research in Motion to be so cocky and arrogant to just completely dismiss anything an activist investor has to say reeks of uselessness at the top. A publicly traded company's ultimate responsibility is to enhance shareholder value. It is clear Research in Motion has done nothing of the sort.

Even if RIMM were to completely lose its share of the handset market it still has valuable assets that are attractive to competitors:

  • Blackberry Brand
  • Blackberry Messenger
  • Encryption/Security network technology
  • Patents, trademarks, copyrights, etc.
  • Subscriber information

With a PE below five it is hard to say that RIMM will go much lower but with a market that is punishing technology stocks anything is possible. One thing I will say is that I cannot recommend that you invest in Research in Motion unless you like to gamble. This is one name that I cannot get behind.

Disclosure: I am long AAPL, GOOG and short AAPL November 19 425 Calls.