Research in Motion (RIMM) had an awful 2011: there's no two ways about that. The situation at Research in Motion (RIM) turned out to be much worse than I expected when I recommended the company back in November. That said, I think my conclusion then still holds today. Even though RIM's Blackberry ecosystem is unlikely to be a major market share competitor for Apple's (NASDAQ:AAPL) iPhone or Google's (NASDAQ:GOOG) Android, I expect it to maintain a niche position within an industry that is still growing by leaps and bounds. IHS predicts that global smartphone shipments will reach 1 billion annually by 2015. If RIM can maintain worldwide market share in the high single digits, the company will probably reverse its current earnings downtrend and exceed last year's record EPS.
While many were disappointed by their first impressions of RIM's new CEO, Thorsten Heins, I think it was still a major achievement to get founders and co-CEOs Jim Balsillie and Mike Lazaridis out of the executive suite. 2011 was filled with bizarre moments of the two co-CEOs claiming that nothing was wrong, while RIM bled market share and suffered from multiple execution missteps. It would have been better to bring in an outsider, but Heins will at least get a chance to build his own reputation (whereas Balsillie and Lazaridis were beyond redemption).
It's February now, and the company has not delayed the release of its new Playbook 2.0 OS, scheduled for release this month. That means that there are almost certainly no further delays, which is good news for the company. It's true that RIM cannot sell the device at full price. This will be even more true if Apple drops the iPad 2 price to $399 as rumors suggest. However, with improved functionality, I think that the device could sell reasonably well at a $299 or $349 price point for the 16 GB version. While this would hurt gross margins, sales would still be profitable (as opposed to the $199 per device blowout from two months ago).
The true determinant of RIM's future success, however, will be its new line of Blackberry 10 smartphones (formerly known as QNX and BBX phones). In December, RIM announced that this product would be delayed once again, with availability in the second half of the year. The company blamed the delay on the need for integrated dual-core chipsets with 4G LTE capability. While it's not clear exactly what chip RIM is waiting for, at least the new phones won't be under-powered as some analysts had previously feared. The real question is whether Blackberry will be able to maintain any market share in the face of an iPhone 5 (likely to show up before the BB 10 phones) and numerous Android devices.
I think that RIM will be able to maintain its niche. It will take a while for Microsoft's (NASDAQ:MSFT) new Windows Phones to gain significant traction, and there is still a sizable market segment that wants a physical keyboard without the security flaws of Android. It's possible that this is RIM's last opportunity to rebound; however, I don't think the company is doomed just yet. There is still a window of opportunity to put out new phones that will keep existing users within the BB ecosystem, while pulling in a few new users in the US (and continuing to grow internationally).
It's possible that I've just become emotionally attached to RIM at this point. But I don't think so. With 20/20 hindsight, of course, I would never have bought RIMM at $46 (my average cost basis is a little under $30). However, I am holding my position because I think that BB10 phones will ultimately have the performance needed to stem the recent wave of subscriber losses. I also think there is limited downside at this point. It's hard to put a definite price target on the stock when so much depends on phones that are still more than six months from release. However, I think the stock could reasonably double in the next 12-18 months as more competitive products improve the company's fortunes.
Disclosure: I am long RIMM, AAPL.