Seeking Alpha

Research In Motion (RIMM +5.2%) ended up giving back a large chunk of the gains it initially saw...

Research In Motion (RIMM +5.2%) ended up giving back a large chunk of the gains it initially saw following yesterday afternoon's FQ2 beat. Few on the Street who are pessimistic about RIM's future seem to have changed their minds on account of the report, and many are quick to mention BlackBerry sales have become increasingly reliant on less mature, cost-sensitive markets. (more) (transcript)
Comments (11)
  • lostalloncoal
    , contributor
    Comments (373) | Send Message
     
    RIMM should sell more of Obamaphone. They will easily beat Apple and Samsung combined.
    28 Sep 2012, 05:44 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    I have beat the crap out of RIMM but if they can get their expenses down and run a good P&L then they got a foundation to work from. And if they really get lean they will be in better shape in some respects for global battle.

     

    Secondly 4/5ths of the world does not a smart phone so if they do some decent penetration in those areas of the world they can build a business out of that. The US is a replacement market war.
    28 Sep 2012, 06:19 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3083) | Send Message
     
    It certainly does seem more and more that the US smartphone market is at, or near, a saturation level. Just over 50% of the population owns and uses smartphones. I thought growth would continue a bit longer, but if we do not see US smartphone growth in 2013, then we may be near a peak.

     

    The tougher part of growing sales in other parts of the world is the infrastructure. Many places are not even at a 3G infrastructure level, and even fewer have 4G available. The economic slowdown in Europe is also not helping developed market sales for any company.
    29 Sep 2012, 01:26 AM Reply Like
  • gwynfryn
    , contributor
    Comments (4752) | Send Message
     
    Another problem is that what growth potential remains, will mostly be to the advantage of those who can cash in on the coming holiday season. With such attractive products as the Lumia hitting the market before then, I'd expect BB10 sales to be slow even if it is a great product, as few will want to cough up the cash when they've already got a spiffing new phone from another manufacturer. In this respect, delaying a quarter was a disaster!

     

    That said, the fact that the market share of their old models is increasing is encouraging, and the potential market for those wanting basic phones is far larger than for those who must have the latest model, even if the profit margin isn't so sexy! It's still worth buying if you've got the readies, but I'm going to wait, as I can see prices dropping over the next few months.
    29 Sep 2012, 09:51 AM Reply Like
  • Herr Hansa
    , contributor
    Comments (3083) | Send Message
     
    Oddly enough, when sales in developed markets are viewed, the Q4 sales figures are not that much higher than for other times of the year. It might seem like masses of people upgrade during the holidays, but the numbers do not indicate that trend. Also, most people are still holding onto smartphones for at least the entire time period of the two year contract in the US. The exception in that has been Apple iPhone, with around 1/4th of owners breaking their contract to upgrade to the latest version.

     

    RIMM had some figures on older models not long ago, presented during a conference call. Since they know which BlackBerry phones are in use on their systems, they were able to put together user base figures. More than half were on older BB5 and BB6 devices. This implies that many are beyond the two year contract period. A few research studies indicate about 40% to 70% of BlackBerry users get another BlackBerry. BB10 is a big change, and some current BlackBerry users may wait to see some user feedback prior to upgrading.

     

    The implied data metric suggests a potential of 32 million or more global BB10 device sales in 2013. This would be an upper target, but only based upon replacement, and not continued growth in smartphones. With much growth in emerging markets, and no lower cost BB10 devices until the end of 2013, that potential may not be seen. Low volume estimate, based upon a smaller upgrade market, and barely 1% growth from overall smartphone adoption growth, may mean barely 6 million handsets. That suggests RIMM may do no better than NOK in 2013. Even at the upper potential on sales, RIMM would be behind Apple and Samsung, though still safely ahead of Sony, LG, and several other lower tier Android vendors.
    29 Sep 2012, 01:57 PM Reply Like
  • JeffreyLangBoyd
    , contributor
    Comments (663) | Send Message
     
    Herr Hansa, can I ask where you got that information on when contracts were entered into?

     

    Believe that it was a Citi analyst who said that February 2013 was the time when many phones in the U.S. went off-contract and that was the point where he thought the service revenues would begin to plunge. I don't know if the analyst was right but it made some sense that was the time the business could start to really hemorrhage cash. Obviously they hope BB10 will be there in time but that doesn't mean the contract information wouldn't be very interesting to review.
    2 Oct 2012, 10:41 AM Reply Like
  • Herr Hansa
    , contributor
    Comments (3083) | Send Message
     
    Gartner Group has a few reports on contract trends, though they are mostly relevant for the U.S. smartphone market. Comscore Datamine has some backing information. Pew Research has other information that indicates trends, though not as up to date as other sources. Research on trends in Europe indicates longer than 28 months for smartphone ownership.

     

    I have enough data to write an article, but I have no interest in writing an article at this point in time. I still consider RIMM a very speculative investment. My recommendation is to avoid investing in RIMM, until a clear indication of BB10 sales volume appears. Regular investors should avoid RIMM until at least Q4 2013.

     

    Probably of different value was information released by RIMM during a conference call, in which they gave percentages for BB5 and BB6 users within their user base. The implied message was that those users might upgrade. However, details were not released. If those BB5 and BB6 users were corporate, then I doubt most corporations would immediately switch to a BB10 device roll-out. If those users were pre-pay, or lower tier, then the initial mid to high level BB10 devices are unlikely to see conversion. The implied message is that the first full quarter of BB10 sales may not be that great.

     

    I'm not sure what the Citi analyst was looking at for data. Offhand I would think he saw some corporate contracts for fleet phones. Corporate users are only a subset of BlackBerry users, based upon data released by RIMM; they are not the majority of users. Service sales and handset sales both increased on a percentage basis in India, for example, which implies that a large portion are corporate purchases. As for the accuracy of Citi analysts, they have been wrong numerous times with currencies, though I tend not to follow them for equities.

     

    I would not look to U.S. smartphone sales any longer as a gauge of potential, and that goes for any smartphone vendor. The U.S. market is near saturation. Growth will need to come from China and other emerging markets, all of which are more price sensitive than the U.S. Revenues will need to come from services or app store sales. User base will become more important moving forward, since that will be the predictor of future revenues beyond selling handsets.
    2 Oct 2012, 02:35 PM Reply Like
  • JeffreyLangBoyd
    , contributor
    Comments (663) | Send Message
     
    Thanks for your thoughts. Will look around for the information and while I hope you write an article I tend to think the rewards from doing so are not worth the opportunity costs so hey I don't blame you for not doing so.

     

    Certainly a very speculative investment but I tend to think the downside is limited to 30-50% Nothing to base that on other than a Credit Suisse analysis and a shallow analysis of the balance sheet. I recognize that they have unbooked liabilities relating to their businesses should they be required to exit certain segments but it is arguably an opportunity to invest in a start-up given how cheap the shares have become. For sure not one to bet the house on.
    3 Oct 2012, 04:50 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3083) | Send Message
     
    Credit Suisse have probably the most balanced and rational analysis of RIMM. Definitely the company under the new CEO is acting more like a start-up than a veteran, though arguably the previous coCEOs appeared to sit on their accomplishments too often. My timeline on my holdings is still three years away. Worst case possible cash burn I have seen indicates four years available cash flow, and then RIMM would need to borrow funds to continue. Overall sentiment is still very negative in the mainstream media, especially at All Things D and popular gadget websites. Until BB10 devices get into the hands of end users, shares may wander a bit.

     

    http://bit.ly/PuhkXr

     

    I got a chance to watch that video prior to it getting pulled. The devices appeared to be rendered through green screen, and not actual devices. Of more interest is the marketing pitch that was in that. RIMM appear to be considering using celebrity connections to promote future BlackBerry devices. Since celebrities are still quite popular trendsetters in the US, UK, and Europe, ti's an interesting choice. However, this might have been an idea pitch, and not an actual development of an ad campaign. In the US, BlackBerry is mostly a dead brand, which means many US investors will not even glance at RIMM. There is also a lack of name recognition, in that the average person does not know that RIMM = BlackBerry. Obviously the company has much work ahead of it. This is what I mean with the "start-up" analogy, in that the company need to create awareness where there is now none. Don't expect improvement anytime soon.
    3 Oct 2012, 05:47 PM Reply Like
  • bedrock65
    , contributor
    Comments (637) | Send Message
     
    The person that leaked that video apparently lost their job.
    On the topic of analyst, they have no clue about RIM. Your start up analogy is bang on, a new OS and 80+ million subscribers, not a bad start up.
    3 Oct 2012, 10:48 PM Reply Like
  • JeffreyLangBoyd
    , contributor
    Comments (663) | Send Message
     
    The analysts who have been pessimistic were optimistic a year ago. Also noted that some analysts changed how they calculated "fair value" throwing out how they calculated it a month ago in favor of new methods that resulted in no price target change. Bottom line, no one knows the future, expecially the experts.
    28 Sep 2012, 06:37 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs