Research In Motion: How BB10 Setbacks Will Impact Your Investment

| About: BlackBerry Ltd. (BBRY)

Two years ago, Research In Motion Limited (RIMM) was a high flying company that was considered to be at the forefront of the mobile communications industry. Since then, the stock price has declined by 85%, and many investment guru's have been predicting the company's demise. The primary reason for Research In Motion's fall from the top has been due to aggressive competition from Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG). Research In Motion's fall was not due to its own incompetence, but rather due to the new and innovative ideas and products that its competitors introduced in the mobile communications market.

In the first quarter of 2012, RIMM lost $518 million and had a negative cash flow of $264 million. RIMM obviously cannot to continue to endure those types of losses, and that is why the release of smartphones with the new BlackBerry 10 operating system is so important. RIMM's CEO Thorsten Heins said, "The successful launch of the BlackBerry 10 platform and the delivery of high-quality, full-featured BlackBerry 10 smartphones remains the company's #1 priority."

It is clear to RIMM's management and investors that a successful rollout of the BlackBerry 10 operating system is imperative for the company's survival. The company is betting heavily on the rollout, and there have recently been rumors that RIMM executives have turned down lucrative offers for its enterprise unit from Samsung and IBM (NYSE:IBM). The rumors have not been confirmed, but it should be noted that some analyst believe them. On more than one occasion, shares of RIMM have rallied because of rumors about the sale of some of its divisions. RIMM currently has a book value of over $18 per share, and its individual parts may be worth more than its market cap. Despite the rumors, it seems that RIMM's executives are determined to move forward with the "hopes that BlackBerry 10 can reinvigorate consumer interest in its products."

Unfortunately for RIMM, the Blackberry 10 project has already had several setbacks. The Blackberry 10 rollout was originally scheduled for before the Christmas holiday season. RIMM's inability to launch its BlackBerry 10 products in time for the holiday shopping season was a major setback. Thorsten Heins recently predicted that the first BlackBerry 10 commercial launches will be in the first quarter of calendar year 2013. He blamed the delay on the integration process for such a large volume of software code.

I believe that RIMM's rescheduled first quarter rollout is also in jeopardy. Despite the recent announcement that the company will be laying off 5,000 employees, RIMM has been advertising heavily to hire Software Developers, Software Test Specialists, and Software Designers - all people that could be assigned to the Blackberry 10 project. An addition problem that RIMM has is that as a result of the company's poor performance and recent layoffs, morale is low - which could mean that it will have problems retaining employees. These developments suggest to me that the company needs additional help in order to order to complete its BlackBerry 10 project on schedule. The company will not tip its hand, because news of another setback for the BlackBerry 10 project would probably hurt the stock price.

Recent news that will affect RIMM moving forward

On August 13, it was announced that RIMM will soon be able to license its new Blackberry 10 operating system to other phone manufacturers. CEO Thorsten Heins said that the licensing of the Blackberry 10 is an "OTCPK:IDEA investors seem to like". During the week ending on August 10, shares of RIMM moved higher 8.75%, partially based on speculation that RIMM might license it Blackberry 10 operating system. Licensing out its Blackberry 10 operating system is a new strategy for RIMM, and I think that it could be a big deal. It is too early to predict the amount of licensing fees that RIMM will generate from its Blackberry 10 operating system. However, if the system is as good as the pre-rollout hype, the licensing fees could add substantially to the company's cash flow and earnings.

On August 9, shares of RIMM rallied by 6.3% because of rumors that IBM was interested in its data services arm. In additional good news on August 9, a United States judge dismissed a $147.2 million patent-infringement verdict against Research In Motion. "The judge determined that Mformation Technologies, which makes software for managing mobile devices, failed to show that RIM infringed on a key patent in question." While the dismissal of the Mformation lawsuit is good news, RIMM executives hoped that winning this lawsuit is a precursor to what will happen when the 7 German patent infringement lawsuits that Nokia has filed against them are adjudicated.

The announcements that RIMM could soon be licensing out its Blackberry 10 operating system, and that it has won in its patent infringement lawsuit, are good news for a company that desperately needs good news. But RIMM's fortunes and stock price will rise or fall upon the successful rollout of its new operating system.


Research In Motion is in a very vulnerable position. The company's future is heavily dependent upon the timely and successful rollout of its Blackberry 10 smartphones. If the rollout is not successful, the company's sales will continue to decline, and it will not be able to fully benefit from the licensing of the Blackberry 10 operating system. On August 13, Mr. Heins spoke about licensing RIMM's operating system to other manufacturers, but declined to give specifics about when the rollout would be. RIMM's stock is currently selling at a discount to its book value, and if the rollout is successful, the stock price will rally. However, I am not convinced that the rollout will be timely or successful, and I would advise against investing in Research In Motion at this time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.