BlackBerry 10 Will Not Save RIMM

With a little more than a week to go before BB10 hits the stores, Research in Motion (Nasdaq:$RIMM) has become a hot stock again.  The company that invented the smartphone may be reestablishing itself as a major player in mobile.  Or, we could be watching the biggest dead-cat bounce in history.

RIMM

As recently as this past September, RIMM was left for dead, trading for barely $6 per share.  As this article is going to press, it has nearly tripled from those levels.  A rally that large and over that long a stretch cannot be dismissed as short covering.  Clearly, a lot of investors believe that the BlackBerry is making a comeback.

We’ll see about that.

If you’re a nimble trader with a short time horizon, RIMM might be worth a gamble.  Given the current level of speculation in the stock, there should be some great trading opportunities over the next few weeks, long and short.

But if you’re an investor with a longer time horizon, you should view the rally in RIMM’s shares with a healthy dose of skepticism.  RIMM is not Apple (Nasdaq: $AAPL), Google (Nasdaq:$GOOG) or Microsoft (Nasdaq:$MSFT).    Any of these tech giants can afford to make a colossal mistake or two or to have a new product bomb.  Microsoft and Google have both proven this; with the exception of the Android operating system, neither company has come out with a hit product in years, yet both continue to generate gobs of cash.  Even the infallible Apple had its Maps public relations disaster last year, yet it hardly slowed the company down (stock price crater aside).

But RIMM?  For the erstwhile mobile leader, BB10 is do or die.  If the operating system fails to inspire consumers, then the company is finished.  This is a binary set of outcomes.  Either BB10 is a hit, and RIMM matters again, or it is a bomb and it is time to sell off the company’s assets and close up shop.  Given the competitiveness of the smartphone race, no prudent investor would make that bet.

Let’s pick apart some of the bullish arguments.

RIMM’s messaging and secure email system is a competitive advantage that keeps customers—and particularly enterprises—loyal.  Wrong.  I used to think I would miss my BlackBerry messenger and inbox…right up until I bought an Android.

But beyond this, one anecdotal bit of news late last year made me realize that BlackBerry was finished.  Fannie Mae—the quintessential enterprise customer with overzealous security requirements—was allowing their portfolio managers to turn in their company-issued BlackBerries and instead access their company email via their own iPhones and Androids using a custom app.

I had been skeptical that the “bring your own device” trend would ever expand beyond small businesses.  Big business and government would never tolerate the loss of control or security risks.  Well, never say never.  When government-sponsored entities allow it, it’s hard to imagine who won’t.

BB10’s new features are a “game changer.” Really?  Because everything I see looks a lot like something I’ve seen somewhere else.  The new BlackBerry Messenger (BBM) has voice calling, so you can call friends internationally from wifi or your data plan and not use mobile minute.

It seems like I’ve seen this before.  Oh yeah, it’s called Skype, and it’s already available on every other mobile platform except the BlackBerry.

Rumor has it that BB10 has the fastest browser.  Ok.  For lack of better information at the moment, I’ll concede that point.  But given that mobile devices tend to be app-driven and not browser-driven, that’s a small victory at best.

Rumor also has it that BB10 will have the best auto-correct and word prediction, which are valid selling points for a touchscreen phone.  But will that compel a customer to choose a BlackBerry over the newest, snazziest Samsung Galaxy?  I’m thinking no.

There is huge pent-up demand for the BB10 after months of delays.  This is laughable.  Yes, plenty of current BlackBerry users will upgrade.  But given the poor experience with the brand in recent years, I don’t see too many former users who defected to the iPhone or Android going back.  They’ve moved on, and whatever they found appealing about the BlackBerry ecosystem in the past—such as BBM, which is still the best texting program out there—they have found they can live without.

A related issue here is cost.   I was poking around the T-Mobile store a few weeks ago (shopping for a Windows phone, incidentally) when I picked up the current generation BlackBerry Bold.  Buying it outside of contract, it costs over $600.

Seriously?   $600…for the old, clunky non-BB10 edition?  What will a new one cost? For consumers to give BB10 a chance, it will have to be aggressively subsidized and pushed by the carriers.  Will they?  All major carriers have pledged “support.”  We’ll see what that means in practice.

RIMM’s share price is soaring today on comments from CEO Thorsten Heins that the company’s strategic review could include selling off its hardware production or licensing its software.  I argued a year ago that RIMM could have a bright future as a services company by building on Mobile Fusion.  It could essential follow the path of IBM and become a high-end services company rather than a gadget maker.

But a year later, it’s still nothing more than speculation. And with RIMM no longer dictating terms, carriers have started to push back on the licensing fees for BlackBerry Internet Service and Enterprise Server.

And who, pray tell, would buy RIMM’s hardware business?  Or more importantly, license BB10 as a manufacturer?  Samsung?  Nokia?  Probably not; both have made large commitments to Android and Windows.

RIMM doesn’t have a lot of time.  It’s bleeding cash, and it isn’t expected to turn a profit this year.  For RIMM, BB10 must be a rip-roaring success.  Failure means irrelevance and death.

And let’s not forget one last point.  RIMM is not really competing with Apple or Google right now.  It’s competing with Microsoft to be the third platform.

It is in everyone’s best interest to avoid an Apple-Google duopoly.  Consumers, manufacturers, and carriers all stand to benefit from more competition.  But I’m betting that it is Microsoft that pushes its way in, not Research in Motion.  Microsoft is starting with a clean slate and a fine operating system that any manufacturer can license.  There is no baggage and no cumbersome technology arrangements (think BIS and BES) with which to contend.

Samsung is set to launch its ATIV Windows phone (essentially a Galaxy that runs Windows instead of Android) in the United States about a week before BB10 hits the market.   We’ll see which ends up making a bigger splash.

I wouldn’t be too quick to short RIMM at the moment.  It’s simply too hot to touch.  But once the new release hype has run its course, RIMM could be an absolute feast for bears.

Disclosure: Sizemore Capital is long MSFT.

SUBSCRIBE to Sizemore Insights via e-mail today.

, , ,

  • Colin

    I can’t disagree with many of your statements,but i believe you are overly pessimistic on RIM. Assess how many phones they have to sell to go higher and how many customers they have. They easily can double in price from here. It could be a flash in the pan (1 yr-2 yrs) but I suspect they go out with a bang. The carriers want another player in the space as they’ve been forced to eat Apples subsidies and I believe you’ll see competitive pricing on the phone. You can’t look at the pricing on the old phones as Blackberry has forgot about them for the last year (and rightfully so). When is the last time you saw an advertisement for Blackberry? A long time ago because they recognized they had nothing to advertise.
    I am hard to win over yet I’m excited and waiting for RIM’s new phone (I don’t even have a smartphone yet).  Android is good yet not smooth and polished enough with too many companies making too many different phones. Microsoft is a good company and I like the latest Windows, however there is to much polarization of “I hate Microsoft and Windows” for them to press into the phone space strongly.Look at leadership of the companies specifically apple and RIM. Tim Cook is a money man and all about squeezing the last dollar out of the product; which is great in some industries but not in technology. Steve Jobs understood that you had to innovate and stay cool and image was everything. Tim Cook does not have the ability to lead like Steve Jobs and sales will fall.Thorstein Heins for RIM is winning awards for his leadership and I believe he currently understands the smartphone landscape. He understood not to advertise and to take as long as needed to put out a good product. He also set a deadline and will hit it.. that is a leader.Finally cellphones are as much an image item as they are a useful gadget. Apple has lost the cool factor (see “if you don’t have an iphone you don’t have an iphone ad”) Android is too general to gain it and Microsoft never had it. Blackberry right now has the best chance of claiming the spot as the “must have” item of the year. Will they surpass apple? no! will they surpass samsung? definitely not! Do they need to? No! Their market cap is less than 1/50th that of apple and

    Buying RIM is speculation, but leadership is good. I believe Heins will get you $15 bucks minimum (patents etc). So what is the risk? In buying RIM you are not hoping it will be the next Apple as it does not need to be. It just needs to be RIM

    • http://twitter.com/CharlesSizemore Charles Sizemore

      I actually agree with most of your points, and I was making similar points a little over a year ago when I was a RIMM bull.  My basic argument was that RIMM didn’t have to beat Apple or Google to be a good investment.  It merely had to survive, and I pointed to their strong enterprise business as “proof” that they would.  And it’s cash and patents alone made it worth considering. But after product delay after product delay and failure after failure, I lost faith in management.  BB10 is almost a year late.   And even if BB10 ends up being a rock star, I fear the past few years have simply done too much damage for the company to recover and build up a worthwhile user base.  Too many people had bad experiences; there is a lot of baggage there.  And MSFT has time on its side. RIMM doesn’t.  

      RIMM might still have some life left in it. And you are absolutely correct about it being a cheap stock.  

      We will find out soon enough.  BB10 hits stores in about a week!

      Thanks for the comment.
      CLS

      • http://www.facebook.com/joe.d.miller Joe Miller

        “I lost faith in management.”

        The RIM old guard aren’t running things. This is The Thorstein & QNX Show.

        • http://twitter.com/CharlesSizemore Charles Sizemore

          Eh…maybe. BB10 is a good year late now.  That’s not totally the CEO’s fault, and I was willing to give him the benefit of the doubt.  But the lateness of the launch irks me.  

          We shall see.  In the end, the marketplace will pick the winner, not a financial writer like myself or the hucksters pumping it up on StockTwits or the hot money traders sending the stock price higher today.

          We’ll see what RIMM’s market share looks like a year from now.  If BB10 is a rip-roaring success, I’ll be the first to admit I was wrong.  But for now, I see a lot of ex post facto price target revisions by analysts who are trying to justify a stock price move that has already happened and a LOT of rumors and hype.

      • greg1172

        it already has a worthwhile user base – 79 million – in spite of all the “damage” you speak of.  I know technology and I know when a company is poised to do well.  Rimm is fine and will likely be sitting at $35/share this time next year with many variants of their new OS, OS licensing to other manufacturing and a good 2014 ahead of it.  

  • DirectMailUsa

    Im holding off my upgrade to iphone5 because I have seen first hand what this BB10 can do.
    The features are next generation and its going to be fun to play with. You need to have it in our hand my friend. Its awesome-FASTER-SMOOTHER-ONE FINGER OPERATES IT-WORK ON SEVERAL APPLICATIONS AT THE SAME TIME-BETTER CAMERA FEATURES-ZOOM ON VIDEO-YOU CAN TALK TO THIS PHONE FOR EVERYTHING YOU WANT IT TO DO-UNBELIEVABLE

    • greg1172

      it is a game changing device for sure.  consider an MSFT long position would need Rimm to fail.  there really isn’t room for 4 players and MSFT already took its shot and is STILL losing market share.  short Nokia and long rimm

      • mantikos

        MSFT is actually gaining and in EU is firmly #3

  • Jj

    all your points are priced in and well known negatives…that’s why it’s 90%

     off its highs.  rimm isn’t competing against apple or google.  as a stock it’s competing against the bar the market set for it which is extremely low. 

    • http://twitter.com/CharlesSizemore Charles Sizemore

      “As a stock it’s competing against the bar the market set for it which is extremely low.”

      Very true, and RIMM was priced so cheaply last summer that it could have been hacked up and sold for spare parts at an enormous profit, BB10 or not.  

      At its current price it is still “cheap,” trading below book value and at .65x VERY depressed sales.  But this assumes that management will stop destroying value, and I’m not quite prepared to assume that yet.  

      The next few months should be very interesting.  We will either see the rebirth of an iconic company or a spectacular flameout.  

      • greg1172

        Come on Charles, at least look at the phones features and competitiveness v the competition.  its an extremely compelling device and it has a very legitimate opportunity – significantly moreso than Nokia’s MS based junk.  this is an entirely different leadership team than the one “destroying value”.  this time next year i’ll drop back by to say i told you so.  It would be hard to expect anything different from a MSFT long position holder :)..speaking of destroying value.  do you seriously place balmer’s leadership above that of Rimm?  

        • http://charlessizemore.com/ Charles Lewis Sizemore, CFA

          Well…I’ll concede your point about Balmer.  $MSFT needs better leadership at the top.  

          I will accept a gentlemens bet.  One year from today, if $RIMM has a bigger market share than $MSFT in mobile, I will accept that I was flat wrong and will owe you a beer or the drink of your choice…unless it’s Blue Label or Louis XIII or something else I won’t be able to afford if my Microsoft bet goes south…lol

  • greg1172

    This is probably the worst write up on RIMM i’ve seen…not to mention the stock is on an absolute tear right now.  the BB10 is an outstanding product and will be very competative in the smart phone war.  he sounds like a hater and honestly, Rimm has worked really really hard getting this product to market.  I have not tolerance for people like this guy that bring nothing but hate at a time when thousands of Rimm employees have worked extremely hard getting ready for this launch.  there are people that thrive on others failures.  they’ve done nothing and so enjoy destroying others – this guy is one of them.  Rimm has an outstanding chance to return to part of their former glory and certainly has the leadership to do it.  There is a lot of very positive energy with Rimm right now, this sadist just doesn’t happen to be part of that.  

  • mantikos

    “Microsoft and Google have both proven this; with the exception of the Android operating system, neither company has come out with a hit product in years”

    Windows 7, XBox360 and Kinect were all hits from the house of Redmond

    • http://charlessizemore.com/ Charles Lewis Sizemore, CFA

      Raveen, decent points, but I would add that Window 7–as great as it was–was still Windows.  It was a new iteration / improvement on an existing product. I was making the point that Microsoft hasn’t had many NEW hits.  (The Xbox too has been around for a while).  

      I’ve also been disappointed that Microsoft hasn’t been able to leverage Skype better than it has.  We’ve discussed this–we both believe it is due to their fear of angering the carriers they need to promote the Windows Phone–but it is still frustrating.  At the very least Skype should have obliterated Facetime, Viber and Whatsapp by now. Destroying traditional telephony might take a little longer.

      That said, you know I’m a Microsoft bull.  The company gushes cash, and its Windows and Office franchises are just about the deepest moats you can find in the world of tech.  And if anyone has the potential to put the nail in RIMM’s enterprise coffin, it is Microsoft.  And I’m betting they do.

  • http://www.facebook.com/jim.ficker.9 Jim Ficker

    Oh, this is so funny. Why can’t people just face the fact that RIM has one hell of a phone coming out very soon.
    Perfect timing. People are itching to upgrade their old phones.

  • greg1172

    facebook should buy Rimm’s hardware business.  that would be interesting.  hey mantikos, the data i saw about msft phones was losing QoQ to around 4.5% of total market.  thats almost insignificant.  i think rimm was still ahead of it.  theyve been trying for over a decade in phones but nothing has worked much

  • Pingback: How to Front-Run the BlackBerry 10 Bomb With Options()



Disclaimer: This site is for informational purposes only and should not be considered specific investment advice or as a solicitation to buy or sell any securities.

This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.