Research In Motion: Bad Speculative Play With Big Risk

| About: BlackBerry Ltd. (BB)
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Recently another Seeking Alpha contributor suggested that Research In Motion (RIMM) was a good speculation play with limited risk. I disagree. I believe that RIMM is dead money with limited upside and will only continue to decline as it continues to lose smartphone market share.

Start with the fact that today, September 12, 2012, Apple (AAPL) is set to announce the launch of the iPhone 5. Is there any doubt that the iPhone 5 will be a smashing success? I detailed my reasons in a previous article on Apple. In that article I discussed how 38 percent of BlackBerry owners plan to switch from their current handsets to the iPhone 5. If this percentage proves accurate, that would spell impending doom for RIMM.

Turning to the other contributors analysis, the contributor appears to base his entire argument in support of RIMM on the admitted speculation that RIMM has a loyal fan base and therefore if its new line of phones is reasonably innovative, they will be a success stating:

I am assuming that RIMM has a loyal following for whatever reason. As such, I am assuming (speculative by default) that if the new line of phones are to any degree innovative and offer current users features that might close the gap with other smartphone markets, then the new product line will be a success.

He bases his conclusion that RIMM has a loyal following on the fact that a few of his friends bought Android phones and returned them for BlackBerry devices. His conclusion however has no basis in fact, at least not in the United States. That 38% of BlackBerry users that plan to switch to an iPhone 5 I cited earlier and in a previous article may prove to be low. In surveys conducted last year, 52% and 67% of BlackBerry users said they plan to switch to an iPhone when their contract is up.

Apparently, BlackBerry will continue to bleed subscribers through the end of the year, making it likely that RIMM's launch of its new line of phones in the early part of next year will be too late to save the company. Even if the new BlackBerry devices receive blowout reviews, the odds of consumers switching back to the BlackBerry platform are slim. The positive reviews that Nokia (NYSE:NOK) and Microsoft (NASDAQ:MSFT) received on their new Windows phones have not exactly translated to huge sales numbers.

So, with the upside limited, an investment in RIMM would hardly qualify as a speculative play, which in my opinion should have much greater upside. Surely, then, the downside is limited, right? Of that I am not sure. The other contributor believes that there is little downside to a speculative investment in RIMM as long as you put a 10% stop loss in place. By that logic every trade has limited risk as long as the trader puts a moderate stop loss in place.

The fact is that the entire future of RIMM is riding on its new BlackBerry devices which are at least five months from market, and in that time period, a significant amount of RIMM's customers will have switched to an iPhone.

As summarized by Pacific Crest's James Faucette:

RIM cannot compete on cost, it cannot compete on user experience, it does not have the range of devices offered on other ecosystems, it cannot compete on content and to date it has not been able to compete on development talent.

Basically, RIMM cannot compete.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.