This article isn't meant to reiterate how unfair the media has been to Research In Motion (RIMM), nor convince others that RIM is a solid company and so on and so on; most of the Seeking Alpha community has read enough of those. This will merely point out some of the subtleties that are crucial when looking at this company, and as the title suggested, some hors d'oeuvres before the earnings announcement on Thursday the 29th.
A Little Context
For anyone who isn't familiar with their history, the Verge has a fairly good article about it. Take away the facts but leave the opinions behind (form your own).
Some of the more vocal comments are that RIM should be bought out, we have a direct quote from Harper (our current Canadian PM for those who don't know) that he wants to see RIM continue growing as a Canadian company. It'll have to be a unique set of circumstances from now until late 2012 for any hostile takeovers to pass by the Canadian government, through which it can legally intervene.
Some have purported a stock buyback, but the TSX has rules regarding that:
The 12-month limit remains the same, and issuers are still entitled to repurchase the greater of 10% of the public float on the date of acceptance of the NCIB by the TSX or 5% of the class of securities issued and outstanding on the date of acceptance of the NCIB by the TSX, excluding securities held by or on behalf of the listed on the issuer on such date.
Management and Culture
Now, something that I have to mention and it might seem verbatim; is the new CEO Heins. Readers should note that Heins has about 3Q before shareholders cry for his head. For those who've read "Good to Great," these might seem familiar, or rare to see:
- larger-than-life, celebrity or hot shot CEOs coming in from outside the company
- Under the right conditions, problems of commitment, motivation, and change largely melt away
"Good to Great" also mentions a cultural aspect of the company that is crucial to success, now I'll have to go into my personal experiences for this one but hear me out.
I'm a student at U Waterloo, and we have a program that places students as interns into different companies, RIM being one of them. I'm not there personally, but I do have a friend there. At the time that he went in (early January), he had a 4S (actually, we lined up together). He hasn't turned a BlackBerry fan, but he does have the new Bold now. He likes both the Bold and the iPhone.
A friend of my father is a programmer at RIM - the only comment I've heard from my dad about him is that "it's really busy there and it's a good place." Now the key here is that his sentiments (while they aren't reflective of everyone working at RIM) are a better indicator of what's happening inside than a pure numerical view from the outside.
There has been friction between teams that work on the new BB 10 system, and the teams working on the soon-to-be-phased-out BB 7. I know enough friends who've worked at Google, Facebook, contrasting smaller tech start-ups that what they work on and whether they enjoy it actually makes a world of difference on the quality of work, the time spent, and the end result. If there's disunity within the company, it's just a matter of time before product standards, releases, and services fall short - this was probably a major reason for the lows in 2011.
Back to the Present
Some of the changes being made should be obvious (what RIM is doing and not doing). They're not axing their whole line-up and copying Apple's business model; it should be obvious what RIM has not done strategically right now.
There's a lot of people that will debate on which hardware is better, but I won't bother with that. To understand the smartphone industry, it's almost a bit counter-intuitive.
Hardware plays a significant role up to the point that the current hardware doesn't seem outdated - the lifespan of phones in North America is around 2 years or so. Things like processor speed, memory, and camera don't make-or-break (in general) and play into personal preferences (SD card, etc). The hardware only provides a platform for the software. (There are countless examples with exceptional instances of hardware that "should have": Nokia's N8 12 MP camera was a better camera than some digital ones at the time).
A lot of RIM haters say the company is releasing products too late into the game. The keyword here is the experience (not necessarily apps and games, but it might be) - it's what each user wants and gets out of the phone.
In the gaming industry, World of Warcraft can't be compared to some more "modern" Massively Multiplayer Online Role Playing Game when it comes to graphics, or new features. It was simply about experience, and it's success is akin to what RIM had back in the halcyon days. Since rumors of BB 10 have started coming out, we've seen a transition to address this user experience. They've targeted developers heavily, getting phones out to developers (this is actually surprisingly positive), revamped and polished the development process. They're keeping the functionality that drove RIM and started integrating more social and current trends - albeit with baby steps.
One really key thing to point out about the industry is how each one of the competitors compete:
- Apple has 1 phone per cycle (some iPhone users think they are being unique and standing out from PC by choosing Apple, but that's not the case); in either case, the marketing works
- Google has multiple vendors (some think it'll slowly drift to Motorola), and Google's general ecosystem is largely more flexible than straightjacketing users to certain hardware
- RIM has enterprise customers and a massively popular social tool (BBM). Pre BB 10, its product choice on the shelves was a bit overwhelming.
The last point is the most important when looking at RIM's portfolio. RIM has tossed it's big lineup of devices and have resorted to 3 or 4. It's generally rumored to a flagship model (think Bold), a lower-end tier (Curve), a slider (Torch), and full screen (Torch again). This will clean up it's product line and separate them by needs/wants. Along with it's Playbook, it should be a complementing portfolio. One small tidbit is that while these companies compete in the same space, they can't simply do what the other is doing, and the reasons should be obvious.
Playbook Going Forward
Since the 2.0 update for the Playbook is only a month old, there isn't much reliable information - unless we're comparing FutureShop/BestBuy sold out of Playbooks to various inventory checks. I dislike both, and I'd rather not.
There are some subtleties, though. I urge anyone who wants some indication about Playbook sentiments to go to Amazon.ca/.com BestBuy/FutureShop and scroll through the reviews post-2.0 or Feb 21; you'll find a lot of people are really surprised and love it.
This is probably the hardest to objectively determine - I've programmed a lot personally and reverse-engineered my fair share of code. While it's regarded as the new and cutting-edge in embedded systems (not just in phones), how it plays out in the phone market simply depends on the UI and user experience. From daily crackberry visits and looking at increasing hardware capabilities (Paratek to be the most recent), I would say it has immense upside and no downside. The UIs are getting much more responsive and usable without ditching the familiarities. Theoretically, apps, games, and themes should do better on the system because it's better designed - there is no argument there. The above 3 pose the same problem as Microsoft and Nokia's Catch 22, one needs to supersede each other before the other party moves. It might be interesting if RIM has purposely released the dev devices to:
- show that product development and release schedules are being meet or even beaten; and
- receive real feedback and act on it. (I'm sure it's a common experience when users say "it's so obvious this and that should be fixed, and they still haven't done so.")
How BB 10 dev devices are received remains to be seen, but QNX certainly isn't going to phase out. It's being used in a lot more industries and low-key areas.
I don't know much about Paratek and RF technology in general, but a quick glance at their patent portfolio seems to indicate a lot about interference, and lower battery usage when scanning and tuning - I might be wrong, so take a look yourself. It's widely known in North America that the networks are gripping for air - Lightsquared being the most recent. If there could be a significant increase in connectivity (along with increased battery life as a side effect), managing different networks and frequencies with embedded technology, it would set the new benchmark for the term "world phone."
What Happens After Thursday's Call?
I'd say with 75% confidence that the US numbers have stabilized. I love how China Unicom introduced BB a few weeks ago, and I'm pretty confident about RIMs non-US growth. I'm leaning towards an earnings within their guidance and even possibly towards the upper bounds, a positive on growth in their targeted sectors and their updates on Paratek and fy 2013 guidance.
If this happened, the stock should shoot up in 2 rallies to something above $20 - the first should be the initial stop limit for shorts, and the second should be after the news has been absorbed.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in RIMM over the next 72 hours.