Worried about RIM
I suspect that, most days, I make errors in judgment of some form or another. Rarely do they hurt, fortunately, and we all hope to learn from previous mistakes. Like the time I made a U-turn on Wellington Street in 1991 without first looking; a Korean-made sedan hurled into my front left quarter panel and looked much the worse for wear after the encounter with my Pathfinder. I lost little more than a turning signal, but his repair bill wasn’t small. His front and rear doors were smashed in. Haven’t made that mistake again.
A few weeks ago Fabrice Taylor sounded the alarm about the state of the world at Research In Motion (RIM:TSX). He was focused on weakening gross margins, and wondered why RIM continued to spend so much on R&D and so forth. As a long time RIM fan and shareholder, I read the piece with care and wondered if there was anything in the analysis that should cause me to jump for the exits.
Despite the positive reports from Equity Research Analysts, and growing earnings, one can’t ignore the fact that RIM shares are almost flat on a 1 year basis, and down more than 30% on a 2 year review. For a buy and hold investor, you’ve got to have held RIM since June 2007 to have made any meaningful money.
Having sold RIM (at a profit) two or three times over the past 8 years, I can tell you that I had vowed to never sell it — ever again. I was forever having to buy it back at higher prices later. Trading it is different, as there are just so many opportunities each year to do just that. But exiting completely? Never works.
Inertia has prevailed for now, but at least it was considered inertia.
And yet the new RIM print advertising campaign is giving me butterflies. Hiring U2 to front the product a few months ago seemed sensible enough: want access to consumers? Get one of the best consumer brands in the world. Besides, Jimmy’s a fan of the rock world.
Of late, though, the online world is replete with RIM advertising. Maybe I hang around their target sites (NYT, for example), so that in and of itself shouldn’t be a concern. But, the penny dropped for me today when RIM ran two full page ads in the front section of the Globe & Mail; home of the very same Fabrice Taylor. The very paper that, just a few years ago, unfairly questioned the charitable bonafides of RIM’s Co-CEOs.
This can’t be a good sign for shareholders. Not that RIM has made peace (the industrial league hockey story was the initial white flag), but that RIM thinks there’s a single adult reader of the Globe who hasn’t heard of the company, its product, or what it’s like to be connected to the world via wireless email.
This can’t bode well for momentum in the consumer market, can it?
I know that smartphone penetration still has a huge amount of room to grow, and RIM will soak up volume without needing a new “Gaga” device; but perhaps it is time to do the pair trade of RIM and Apple. Might be time to throw in the towel on this solo strategy; why pick between the two? Just own both.
MRM
(Disclosure – I own RIM)
I’d be more worried about android/google phones. They have keyboards like the blackberries and the second generation devices coming out end of this year (from many manufacturers) are rumored to be very very good. Watch next for waves of cheap and good smart phone hardware coming from chinese manufacturers based on the (free) and well-supported android platform.
and then don’t forget even palm coming back from the grave with the pre.
The smartphone tsunami is coming. This will be great for consumers and business users. Not so great news for certain stalwart Canadian device makers who used to have a big part of the playground to themselves.
The pace of innovation in smartphones is going to be relentless over the next few years. And the major area of competition will be at the OS/software-platform ecosystem. Let’s hope RIM has what it takes to keep up.
I agree with almost all of your thoughts — and AAPL laying down great numbers last night shows that RIM could be doing better, even in a recession. (If AAPL can have rising ASPs and gross margins, why can’t RIM?)
But I have to push back on the Globe and Mail ads being a negative datapoint. Coca Cola has been around for over a hundred years, but they still advertise Coke, even in Atlanta where folks drink it with breakfast. That is one of the problems with chasing the consumer market: you have to spend like crazy to make sure they’ve heard of you — and then you have to KEEP spending to make sure they don’t forget!
I am less sure that Android will be the threat that Tom thinks — it reminds me a bit of Linux. A good product that ought to have higher market share…but never does.
You’re not the only one worried…Eric Sprott made a call about a week or so ago to short RIM based on similar concerns. According to Sprott, "it will become increasingly difficult for RIM to maintain current profitability levels and continue to grow revenue figures as the BlackBerry encounters increased competition around the world." I couldn’t agree more – there are too many other smartphone options out there for consumers to choose from that cost a hell of a lot less money than a BlackBerry.