Well, RIM … “Ya Blew It!” Imagine this phrase uttered like De Niro said to Stallone in Cop Land, just with much more conviction. I am putting the pom-poms down and the party is over for Research in Motion (NASDAQ:RIMM) in my humble opinion – at least for a while. Since 2008, I have written many articles about the Canadian Smartphone pioneer and have built a case for this company recovering from its lagging position in the race to be on top. A year or so ago, I cited RIMM’s acquisition of Torch Mobile as a move in the right direction to get the BlackBerry browser up to date and hopefully looking cool.
RIMM has always been a slow-and-steady-wins-the-race sort of company. They engineer and refine their products to be dependable and capable, which I applaud them for. This is also a trait I thought would help them in the long run as long as they could balance that dependability with creating new and exciting products.
So when I heard earlier this year about OS6, I got excited. I felt that RIMM would really wow us not only with this cool new operating system, which they so eloquently teased, but with a device that would bring “sexy back, ” just like Timberlake! But no, we get another so-so slider that looks the same as about 15 other devices which have preceded it, only much less sexy. Here you can check it out for yourself.
When Steve Jobs is on stage waxing poetic about how magical his devices are and how nothing like “It” has ever been created before, I would think the counter from RIMM would be something with a bit of uniqueness. Maybe a form factor or set of features that really made the Torch stand out. Looking at the Torch, it seems to just blend in with everything else.
On the other hand, Jobs and Apple take chances. I mean, look at their new cutting-edge, wrap-around antenna that makes calls drop when you touch the edge — it’s amazing! (I say this with my tongue firmly in my cheek). What is truly remarkable is the fact that people even know the iPhone 4 has a major flaw and they are buying it anyway. They buy it because it’s unique and because it feels cool to own one. Not to mention that presentation of the product by Jobs and Apple is much like watching Cirque du Soliel, unlike what I got out of the Torch launch, which was a bit like watching thermosetting plastics dry.
I remember watching the post-launch interview (the launch of the Torch wasn’t nearly as hyped or clear as the iPhone) with the head of AT&T Wireless Ralph de la Vega. When asked what makes the Torch stand out, de la Vega couldn’t even seem to find a specific feature, although he did say it was a versatile phone that allows users to have a choice between the touch screen and keyboard. So thanks for that.
You would think after AT&T’s already over-taxed network won exclusivity to the Torch, they might do a better job at pitching it. CNET agrees with me and notes that the decision to go with AT&T might have been a mistake on RIMM’s part.
So RIMM delivers a lackluster device on a network that has had its share of issues to begin with. That network, by the way, is still struggling to lasso every last iPhone customer before Verizon gets a crack at it. Meanwhile, they are on the hunt for another hot-selling smartphone (or several), which is why RIMM probably got a sweet deal for exclusivity. Then there are the troubles with the United Arab Emirates, but I am not even going to address that.
So in fairness to RIMM and its preferred carrier for the Torch, I decided to take a trip to the AT&T store here in Dallas to get a feel for the product and how it was presented. There were a ton of phones to choose from and by the way, Android phones have eclipsed the iPhone in U.S. smartphone sales, which means just that much more competition for our friends at RIMM.
So here is the Torch in the store. It was housed in a shiny, hermetically sealed case, untouched and untouchable by human hands, which really bummed me out. I was hoping to be able to defend the phone and its new features and maybe share some cool experiences I had with it, but alas, I will have to wait until August 12. I am not sure of the strategy here; perhaps they don’t want customers touching it, using it, falling in love with it, or potentially not really falling in love with it? It’s not like new Droid phones and iPhones are gaining market share or anything.
As much as I felt this company could do something great, there is a lesson to be learned here. Don’t fall in love with any company blindly. While I still think there is a future for RIMM, many analysts share my thesis that RIMM has failed to deliver here and that future growth may be muted. This happened with Nokia (NYSE:NOK) if you remember; they really had a stronghold on the market but failed to keep up with the times. Motorola’s (NYSE:MOT) RAZR is another example of this.
I do still love RIMM’s products and feel the BlackBerry is a dependable solid piece of technology; it’s just not that sexy anymore.
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Tags: BlackBerry, Motorola, NOK, Nokia, Research in Motion, RIMM, torch
Thanks for your thoughts. It may be ironic that you have backed RIM since 2008 to now, a two year period at the beginning of which RIM shares were particularly expensive and, since then, have lost about 2/3 of their value, but now you are somewhat more negative – at a time when the stock trades at 9x forward earnings, has one of the highest free cash flow yields in the big cap tech space, with a 2010-2012 CAGR of over 20% and an ROE of over +25%. Perhaps, therefore, you are a contrarian indicator. If so, please keep the articles coming.
RIM has a number of competitive advantages. One of them is the astonishing number of carrier agreements that the company has built up globally. If you want to sell lots of phones, they have to be on a carrier and, preferably, advertised by the carrier. RIMM has 3x more agreements in place than Apple, for example. Look at Nexus One to see how important this is. BBY exhibited the highest global growth rate in unit sales in Q2 2010. Why? In part, because it is has the carrier relationships to facilitate sales.
Second, the cool stuff that sells tech blogs these days are things like “apps” and high definition screens. For sure, if that is what consumers want, use an iPhone or Android. But the reality is that most people – beyond technophiles and wannabes – use phones are a means of communication. RIM has a clear competitive advantage in terms of email and messaging (BBY Messenger: free and insanely fast, e.g.). The way that RIM offers these services are competitive advantages because they are very hard for competitors to replicate.
Third, security. Whether or not RIM is the most secure device, it is certainly perceived as such. Such is the power of branding.
Fourth: the devil is in the details. RIM has introduced a “do-it-all” phone in the Torch which people can bring to work but which now will also meet many of their personal needs. So what? Well, RIM has introduced software than creates a firewall between work and personal emails/ data etc. When you look into the details of this, you start to get a deeper understanding of what they are up to. It’s smart stuff.
Finally, don’t believe the hype around apps. Most of them are toss. The current app growth is a fad that will moderate. Apps are just computer programs. If these programs were that great, many would have existed before for computers. Right now, users think it’s cool to download – even pay for – all manner of pointless apps that perhaps provide a laugh and a bit of mindless entertainment. But consumers will lose interest when the novelty wears off. My space was cool when it first came out. Then it morphed into something out of control. Some apps are great, but their development seems out of control. (Check out the number of fart apps, for example, on the App Store…)
So, I guess the message is not to be fooled by the shallow comparison of a few specs. Sure, RIM has to keep pushing forward or, indeed, they will be left behind. The history of technology tells us that it is very hard for a company to survive over the long-term. But, with a pretty current line-up of phones about to be rolled out, combined with some real competitive advantages and a stock valuation which reflects a very bearish prognosis, the chances are that the stock is currently bottoming. Tech stocks are a risky business. But for those with the constitution, the odds on RIM seem pretty good. Thanks.
Thank you for the reply, in actuality, I tend to be more of a shorter term type investor and over the years with RIMM have bought it when it was relatively cheap both from a technical and fundamental view as well sold it when it was getting toppy or hedged the position over earnings as RIMM tends to sell-off. I have been vocal about both my bullish and bearish sentiments and expressed them in blogs and CNBC.
But regardless, timing and strategy is another topic.
Everything that you are saying was exactly the reason why I liked RIMM in the first place. My notes over the years confirm this. I agree with you 100%! J
My thesis was that the peaks and troughs would be in more of an ascending formation over time, not what we have seen. It is not like the company isn’t growing.
But you and I both know that much of a stock’s value is about market sentiment (at least in the short term). There are a ton of cheap (from a fundamental and comparative standpoint) companies that never really see their stock price appreciate the way we feel they should.
I agree that RIMM, based on fundamental analysis, may be bottoming. I just don’t believe that the stock is going to explode to the upside and I was disappointed with their offering and choice of carrier.
Communication, you would think, would be the main reason a consumer buys a mobile phone, however the still largely untapped Smartphone market usage blend is quite different than the past observations of 90/10 (90% communication 10% everything else (apps, gps, etc) The Smartphone is a tool/toy, it’s quite different in the way it is utilized by consumers, becoming more of a 60/40 sort of device.
Where I disagree with you is your point that phones will only be used for communication. I remember the early PC’s which were essentially word processors. When I bought my first one I was so excited that I didn’t have to retype an entire page or use white out, but as I started to learn more and more about the capabilities of computers, I decided to trash my word processor and buy the Apple IIc, which allowed me to play games, write, communicate, etc. This is a common theme amongst American consumers; do you still use your Commodore 64?
As technology evolves, but more importantly becomes cheaper, I believe (and have observed in my lifetime) that all of the electronic devices that most Americans and Europeans carry around and use in their daily routines will be combined. Garmin was the perfect example of this, it was an awesome product until everyone figured out that a GPS that was 80% as good could be included in their Smartphone, which in turn made the smartphone more valuable and GRMN struggling to keep up.
Like I said in the article, I don’t think RIMM is going away; I was more focused on their current offering of the Blackberry Torch, which I thought seemed mediocre. Maybe on August 12th, it will blow the doors off the iPhone, trust me, I would love to see the company perform!
Thank you again for your input.
JL