Research in Motion (RIMM) stock has been holding on to current levels in the middle of this market decline. Does this mean investors or traders know something about the company that is not obvious? No, it means they still use Blackberries instead of iPhones and have no sense of tech history.
Simply put, Research in Motion is a dead company.
Research in Motion is all about the Blackberry – basically a single product drives the company. The Blackberry competes against the iPhone, and the Android phone ecosystem with its many different hardware suppliers. It also competes against second tier smart phones such as Nokia (NOK) and other Windows based phones. There is only room for two players – the Apple (AAPL) /iPhone and the Android universe. The other players are living at the margin of the market, their share is stagnant or declining and they have no hope of competing against Apple and the Android.
Do I exaggerate?
Apple’s revenues last quarter were $39 billion; Google’s (GOOG) were ten and a half billion. If you are delusional and believe a Windows smart phone has a prayer in this market, Microsoft (MSFT) had $17.4 billion in revenue. Research in Motion’s revenue? $4.2 billion, down 19% from the same quarter last year. In the smart phone market, it is all about the ability to develop new products and refresh your operating system and ecosystem. With operating margins generated by revenue. That is happening with iPhone and Android phones; it is sort of happening, in a more limited way, with Windows phones; it is not with the Blackberry.
And it is only going to get worse. A recent (April 12, 2012) survey by ChangeWave Research, a division of the 451 Group, showed future buyers of smart phones were disposed to buy as follows:
- 56% Apple iPhone
- 22% Samsung (OTC:SSNLF) /Motorola /HTC Android phones
- 3% Blackberry
Pretty much says it all. Well, there is more from the same survey. When current owners of a smart phone were asked if they were “very satisfied” with their smart phones, 75% of iPhone users said yes. How many said yes who owned Blackberries? 24%. Whoops.
A couple of weeks back Research in Motion announced the Blackberry ten – and botched the announcement. The ship date? Some time in the fall, not exactly precise. The features? Nothing special. The market reaction? A sell off in the stock.
Part of the sell off was the undue expectation RIMM was gong to pull off a miracle. The other was the based on clear-eyed investors looking at reality. Without compelling features, the new Blackberries will not attract the developers needed to create apps that make the phone more appealing than an iPhone or Android phone. As with personal computers, the success of phones is the software – the ergonomics, the interface, and the apps. Even Steve Jobs admitted the Mac – and therefore Apple as a company – was probably saved by the deal with Microsoft that insured Microsoft Office would be available on the Mac.
That is the marketplace review? Dead and getting deader. What about a company view?
A week or so ago the company announced new management, Kristian Tear to become the new Chief Operating Officer and Frank Boulben to become Chief Marketing Officer. Tear comes from industry powerhouse Sony Mobile Communications, where he was an executive VP. Anybody out there own a Sony phone? I thought so. Boulben was EVP of Strategy, Marketing and Sales for LightSquared. That crackerjack outfit went bankrupt yesterday. The new management team’s resume is not encouraging.
Five years ago the company may have been fine – Research in Motion’s primary market was the business user with some help and revenue from consumers – and the ecosystem and apps those consumers wanted mattered far less. Everything has flip flopped – consumer behavior is pushing iPhones and Android phones into corporate America and displacing Blackberries, in part because of phones and in part because of tablets. Yes, tablets.
ChangeWave surveys show the iPad with an incredible 86% share among those planning a tablet purchase. More relevant to RIMM, 18% of corporate IT departments surveyed said they are now providing tablets to their employees, up from 4% less than two years ago. And where iPads go, iPhones follow. The iPad is leading to a rapid erosion of market share for Blackberries in their core market, business.
They saw this and managed to develop one of the worst tech products of this century. Their foray into tablets was a disaster, a product pulled from the marketplace at the cost of a billion dollar write down. The result is that Research in Motion currently lacks a product to counter the iPad and the accelerating trend towards tablet usage among businesses.
Lousy and dying products; unproven management; ferocious competitors eating into its installed base and the heart of its market presence. OK, the company is in deep yogurt. What about the stock? The three year, one year and one month charts all say the same thing – a ruinous decline for shareholders.
Why is anyone buying the stock if those survey results are accurate – and they are – what is the market missing?
First, RIMM is a very big and popular name, in part-- and I am not joking about this-- most analysts still use Blackberries. I did research that was sold to analysts and traders on Wall Street for six years and I was shocked, then amused, at how parochial these guys and gals can be. I vividly remember the hedge fund type saying the Mac was a toy and ignored the ChangeWave Research survey results about the iPod. The stock was at $30 at the time.
Second, there is a belief some dumb company will buy Research in Motion at a premium to the current price. I do believe some dumb company will buy it at a much lower price, similar to the ridiculous purchase a few years back of Palm by Hewlett Packard (HPQ) . Do you remember Palm and the Palm Pilot? They are buried right next to the plot being readied for the Blackberry and Research in Motion.
What about the Canadian government? Yes, they like their corporate champions up there – we do too, regardless of the rhetoric on Capitol Hill – but Research in Motion is not an employer with unions to lobby the government and have an impact on elections. The Canadian government might make some noise about an acquisition but it is hard to see them directly helping the company when it runs into financial trouble.
Editorial note: Nokia, another victim of Apple and the Android and bad management decisions is almost as dead as RIMM but the Finnish government will never let Nokia die. And that stock is already down into the very low single digits, not much to be gained by shorting it.
How low can that stock price go? I think RIMM has no fundamental value other than its cash – harsh, but there it is. I am guessing the fair value of an acquisition, if made within the next six months, would be around $2, for patents and customer base and so on, and that would mean the idiot company buying it would pay $4-$5. That price point is a long way to go from current levels.
One last objection - RIMM is a well known short candidate. That is true - but short interest is decreasing and days to cover is only 2.2, a great sign for those of you looking for an entry point for a short position and patient enough to watch the RIMM’s march to the tech cemetery.
Disclosure: I have not and will not short RIMM in any fashion, including puts, and I have an open recommendation to buy puts on the stock in my service Michael Shulman’s Short Side Trader.