Research in Motion's (RIMM) stock price recently had a surge from $12.8 to as high as $14.40, partly due to its new QNX based operating system BlackBerry 10, or BB10. The stock has attracted an army of investors keen on RIM's low valuation -- it appears cheap. However, as I argue in this article, nothing is improving at RIM. If anything, the stubborn decision to release BB10 is likely the last nail on RIM's bankruptcy coffin.
RIM currently has three options:
1) To start manufacturing Android-based smartphones. This market is very crowded already. Samsung is the leader, and there is Motorola (NYSE:MMI), which I believe will soon be split off or sold by Google (NASDAQ:GOOG). There are also a large number of smaller or big but lesser-known manufacturers (such as China's ZTE (OTCPK:ZTCOY) and Huawei). To be able to even compete (not leading) in this market, RIM has to significantly improve its hardware design capacity -- its current products are way too outdated. Even with that, RIM will almost surely see a much lower profit margin, again thanks to the competitive market and its own late entry. By doing this, RIM might survive. But it is a bitter pill that's very hard to swallow -- RIM will lose its independence in operating system, and it will not be able to distinguish itself from other smartphone manufacturers.
2) To start manufacturing Windows 7 (or 8)-based smartphones. This option has similar issues as option 1. Moreover, Nokia (NYSE:NOK) is another desperate mega smartphone manufacturer already in a leading position in this market. RIM will have to face almost every Android phone manufacturer (most of them also sell Windows based phones), plus Nokia. In fact, this option is perhaps riskier than 1 as Windows 8 is still an untested platform compared to Android. The plus side? If RIM chooses to do this exclusively, it could possibly get some financial help from Microsoft (NASDAQ:MSFT). And by the way, we should not dream of Microsoft taking over RIM -- Microsoft's strength is in software, it will not take over a hardware company that has to refresh its product line at least once a year -- and this is the same reason why Microsoft didn't and is unlikely to take over Nokia in the future. Microsoft simply does not have the expertise to manage it. The same goes for Google's takeover of Motorola. It would be insane if Google still owns Motorola's cell phone manufacturing business a year from now.
While 1 and 2 are not mutually exclusive, as RIM can always produce both types of smartphones, they might save RIM from sure death, and will make RIM a smaller and less important player. But there is also a third option, which is what RIM has chosen to do.
3) To keep working on BB10 and release the new operating system later this year. The biggest problem with this option is the market simply cannot and will not support another platform. Windows 8 is an exception. It has hope because of almighty Microsoft and Microsoft's gamble on using the same interface for PC and smartphone operating systems. BB10 is simply a case of dead on arrival (refer to the history of Palm's much loved Webv OS). There is no value proposition from the customers' perspective why they should adapt to a fourth platform which has no clear advantage. One of the most touted features of BB10 is that it allows the user to install Android apps, but it seems very inconvenient and doesn't even work universally on all apps. Consumers are lazy. Human nature is to seek out the easiest thing to operate at the lowest cost possible -- for most people anyway, not a tiny percentage of tech geeks. So what is BB10's advantage here? Nothing. Inconvenience on the other hand, is plenty. Actually, BB10 will do more harm to RIM than good because it will burn more cash off RIM's limited financial resources. R&D costs money, and releasing a new mobile OS costs a lot of money. BB10 is a poison pill. Likely it will only accelerate RIM's demise.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.