This article will offer up an original and refreshing spin on the facts resulting in a bull case argument for Research in Motion (RIMM).
It is no secret, and no poll is required, that the majority of the media, SA articles, and SA commenters are skewed towards a bear case for RIMM. However, with that being said, many of these bear articles spew nothing but regurgitated negativity, and fail to focus on all of the facts, and the overall big picture that exists for RIMM.
To begin with a baseline, examine below the global market share of smartphones 2 years ago.
The reader will note that RIMM and Android are virtually tied, and Apple (AAPL) actually trails both RIMM and Google (GOOG) Android, respectively. Nokia (NOK) clearly takes the lion's share circa 2009 (hard to believe).
Fast-forwarding to (not even 1 year later) the stats data from Feb. 2011.
Some additional highlights from mobithinking:
4c) Android is the top operating system for new smartphones sold in 2011.
• Canalys (February 2012): 48.8 percent of smartphones shipped in 2011, shipped with Google's free Android OS.
• Canalys points out that smartphones now outsell PCs.
• Previously Nokia was the leader in smartphones, until its surprise decision to drop its Symbian OS in 2011.
The point here is that Android has clearly shown explosive growth in a relatively short period of time. Part of the reason is that the operating system is essentially free. The other part is that many manufacturers offer the Android OS on their product line-up (such as Samsung and a few other recognizable names). With that being said a couple of things could be reflected upon here: this could potentially be history repeating itself for AAPL, in the fact that in my opinion, it is similar to what happened in the PC era when AAPL refused to let any other manufactures build its PCs or have its OS more open.
As an analogy, Android is like what Microsoft (MSFT) Windows was for the PC (very open, and easily pirated "free" in its day, which helped with adoption) built on the IBM compatible platform, ushered out by many manufacturers. If this trend continues AAPL does run the risk of continued market share erosion as demonstrated by the current data trend.
How does this all relate back to RIMM? It's two fold actually. First, if one company's product (Android) in an infant and continually evolving smartphone market can grow 244% in one year, and obtain nearly 50% of the market share, is it so hard to fathom that this could be repeated? As a matter of fact, it already has happened in the past decade many times over, with the various operating systems and vendors (some come and gone). Is it therefore not a possibility that it may happen again? Secondly, the fact is that the Java based OS of the current BlackBerry BB lineup is going the way of the dodo, and is making way for the QNX operating system.
Why should the reader or investor care about QNX? A recent article by the Ottawa Citizen clearly outlays the opportunities and growth that exisit with QNX. To summarize: QNX is not some new OS that RIMM is trying to create from scratch (contrary to popular belief). QNX has been around for many years, and is a highly stable operating system. (An engineer was quoted stating that they have not had to reboot QNX in over 5 years running on their equipment.) Regardless, there may be opportunities that exist for RIMM beyond, or in tandem with the smartphone market.
For example, currently 30 million cars have the QNX operating system running the in-vehicle computer. To put that into perspective, that is the current amount of iPhones being used in the USA (the very market that some people have said RIMM has lost critical market share in, and will not survive just based on this fact alone). The fact of the matter is that QNX has the monopoly on in car operating systems. The nearest competitor is MSFT's sync OS with Ford (F). To compound that statement, and have this fact resonate, QNX will furthermore ship a projected 10 million cars next year alone. This is roughly 1/3 of the total iPhones currently in use in the USA.
For further perspective, examine the following image below, which will give the reader an idea of where this market is going, and the possibilities of QNX in vehicles.
Another tandem opportunity is using near field communications NFC. BlackBerries running QNX will seamlessly be able to communicate with your car (without a cable, or via Bluetooth Pin) and there are additional possibilities of the BlackBerry wallet based on this technology, unified communication, and use of VOIP in car. NFC is heavily used in Japan already, and even in Canada the big banks are working on a solution to the virtual wallet via the NFC smartphone.
A few things to note. The car manufacturers will not be pirating the OS, and will be paying a license fee for every single vehicle running QNX (no tight margins on smartphone hardware) and the countless other industries that already use QNX currently.
Getting into the technical superiority of the QNX OS for use in a Smartphone is beyond the scope of the article. Consider that if due-diligence is performed, there are many technical aspects that point towards QNX (the very much of here and now operating system) being superior to that of the current Smartphone OS offering. RIMM is merely porting QNX to BB10, not to be confused with creating an OS from the ground up. RIMM, furthermore, is doing an improved job courting app developers, who have been quoted being impressed with QNX and its potential. I personally don't care about 1/2 million apps, I only use 10 apps, no matter what phone I have. I am quite positive all the really important apps will make their way to the BB10, as well as newly capable ones with QNX's features.
There is also the argument of the bring your own device (BYOD) movement. Many investors are convinced that RIMM will die solely based on this fact, that employee's don't have a cool phone to bring to work, or that employers are loving the savings of not having to procure a phone for an employee. What you may find interesting is that no serious company will take data security as a backseat consideration.
An interesting fact to support this argument is the amount of malware that currently exists for Android devices, and the growth of said malicious code. Perhaps if you have a free, highly open operating system, it is easy to create malicious code for it. After all, I personally know many Android users that turn off their safety switches and run pirated apps via Molbilicity. Who is to say that an app cannot be installed on to some unsuspecting employee's device that then spiders its way through a corporate network, or transmits a copy of all of the confidential company e-mails off said employee's phone to some hacker?
The reader will get a clear picture of this risks in the data below. Not to get to off topic, but RIMM is known and respected for its security, that is my point. Furthermore, RIMM will have top BYOD solutions with its Fusion offering. Moreover, it is quite possible that we will hear about a security breach at some major company in the near future, on a device using Android or even IOS. This may have an effect as to what best practices are then adopted or mandated, in regards to BYOD (especially in governments, and highly security sensitive industries).
As a summary for the link below, Fortinet numbers showed an increase of 83% for smartphone malware creation in 2011 compared to 2010.
Android malware surges in 2011: "On 15th November 2011, Google's mobile operating system Android reached 52.5% of the global smartphone market share. And with it an almost sixfold increase in malware threats". -Fortinet
In summary, what are some of the main positive opportunities that exist for RIMM? The potential smartphone market continues to grow - who's to say that RIMM won't capture new customers? Furthermore, more and more newer model cars are demanding extensive in-car computer systems (enter QNX). Moreover, throw-in the popularity that RIMM already has in the emerging markets, and that fact that there are still 77 million RIMM users that may just indeed want to upgrade to the BB10 once released. This results in an argument that can be made for a viable business for RIMM, and not a death spiral.
Last but not least, I think that an opportunity exists for RIMM to dump some or all of the BB7 phones into the emerging markets at near cost prices to further solidify their brand and adoption in these markets. This is contrary to the paperweight argument for BB7 phones. Of course, RIMM won't make as much money as selling the BB7s in North America, but they will be able to recover some costs, and perhaps build brand.
The analysis could be brought even further into the fundamentals (although the technicals are obviously brutal for RIMM at the moment).
The argument can be made about the trimming 1/3 of the workforce legacy OS staff being a good thing (if you research you will find that QNX is growing, is hiring, has moved into an old Dell 150,000 sq ft facility). It is not so far fetched to see that RIMM is trimming on one-side of the old business, focusing, and growing the other.
It is also virtually impossible, contrary to popular belief, to go bankrupt when you don't owe any creditors any money. A well known fact now is that RIMM has zero debt (no creditors calling, no bond holders etc). Furthermore, roughly $2 billion in cash, and a mix of other positive ratios do exist. In fact, there aren't too many companies in the S&P 500 that have better fundamental stats than RIMM at this moment.
The negative arguments always seem to be that RIMM management was arrogant (who cares, one could say some billionaires are), and that they are too late (really, look what happens in 1 year in this industry). I disagree, this is all a matter of perception, in a fast moving yet ever evolving infant smartphone industry. There have been some management and board changes at RIMM already. As well, the negative concern of a 6 month BB10 delay in the grand scheme of things is not as huge a nail in the coffin in my opinion. (Technically, AAPL was supposed to have released the iPhone 5 by now?) Furthermore, Amazon is deciding to make their own phone, why is it not too late for them? Moreover, on the subject of arrogance, the same statement could be made about AAPL, in what is happening with their lack of openness to manufacturers compared to that of Android.
There are multiple opportunities and revenue streams for RIMM, and once the transitional quarters are over with it is highly probable that RIMM will actually post profit again, and then what?
Consider these last points for a conclusion. Part of the reason why RIMM's shares are so badly beaten down is not the fact that the company is truly doing that bad (if you consider all the facts). A reason to consider is that this has been the media assisted short sale of the decade (as well as bandwagon jumping). Consider that 1 in 5 shares of RIMM are now "borrowed" and shorted (nearly 88 million shares). Furthermore, consider that institutional ownership used to be over 80%, and now sits around 50% if you factor in index funds, hedge funds, pensions that bailed, the stop losses, and shorts that didn't care how low the shares sold for. Furthermore, If you take a tally of just the SA commenters that claim to have shorted RIMM, then you will get the idea that it is like the shoe shine boy that tells J.P. Morgan that he's in the market too.
There is a huge potential for a massive short squeeze here when 1 in 5 shares are "borrowed". The question is when, and what will be the catalyst to trigger this stampede of short covering. Personally, I am quite surprised that with just the fact of 10 million cars shipping with QNX next year alone hasn't triggered this already considering all of the vehicle manufacturers that are already using QNX, and compounded with the vehicle demand growth projected for China and India for the future. It may take the media getting bored with reporting RIMM news, or when earnings start to roll in again.
Disclosure: I am long RIMM.
Additional disclosure: LONG RIMM CALL's (2014 LEAPS).