Research in Motion (RIMM: Charts, News, Offers) flourished in the early 2000s, with its Blackberry smartphones becoming the darling devices of the corporate world. For years the company rode high, with the stock soaring to nearly $150 in 2008 with analysts pegging estimates even higher. That year, Apple (AAPL: Charts, News, Offers) tossed its hat into the ring with the iPhone, which Research in Motion initially dismissed as a fad. Unfortunately, that fad had wings and it took off, changing the face of mobile devices forever, and ultimately cutting into the company’s prized corporate customer base.
To make matters worse, a whole new cast of players entered the smartphone arena, including HTC, Motorola (MOT: Charts, News, Offers), Samsung, which would begin riding Google’s (GOOG: Charts, News, Offers) Android wave to drown the aging Blackberries. To top it all off, the financial crisis of 2008-2009 hit, and Blackberries were the among the first discretionary spending items to be scratched off many customers’ shopping lists. Today, the stock trades at a humbled $60 range, at twelve times earnings. In its current state, is Research in Motion a worthy investment, or is it destined to plummet as its technological relevance dries up?
Daily Chart
Technically speaking, the company has many strengths – such as a five-year revenue growth of 58% and a one-year revenue growth of 27.8%. Its gross margin is at an industry-leading 44.6%, and its net margin is 17.2%. The company has a clean balance sheet with no debt, and a ROE of 40.9%. The company’s flagship BlackBerry line still leads the smartphone market with 34.3% of mobile web usage due to heavy corporate adoption, followed by Apple’s iPhone and iPad at 33% and Google’s Android devices at 23.8%. This shows a steady erosion of Apple’s market share, which last year peaked at 51.9%; a massive gain for Android, which only claimed 8.2% in that same period, and a steady foothold for Blackberry, which declined slightly from 37.3%.
From a non-smartphone mobile web perspective, however, Nokia (NOK: Charts, News, Offers) is still the clear market leader, with a market share of 31.9%, followed by Apple’s iOS at 21.9%, Blackberry at 19.3% and lastly Android at 11.6%. Microsoft’s (MSFT: Charts, News, Offers) Windows Mobile 7, which has been released to mixed reviews, has yet to make a sizable impact on this crowded marketplace. However, Nokia’s continued dominance in the mobile handset arena has been questioned by many, as the company has yet to release a high-end smartphone which has been well-received and widely adopted, and stubbornly refuses to adopt the Android OS.
While the technicals for this stock are all bullish, Research in Motion suffers from the same stagnation that industry heavyweights such as Nokia and Microsoft have been plagued with – large cash piles and low P/Es, but few catalysts on the horizon to lure investors back to the stock. Ever since the debut of the iPhone, Research in Motion has been playing a delayed game of catch-up. The company entered the touch-screen smartphone race too late with its much maligned Storm and Storm 2 offerings, which used a mixture of haptic feedback and a clickable capacitive touch screen dubbed “SurePress” technology in an attempt to make touch keyboards more user friendly. The first Storm was nicknamed the “Blackberry Dud” by the New York Times, due to the slow response of the clickable touch screen along with software and hardware glitches. Compared to the newest iPhone and Android devices, the Blackberry devices are often viewed as aging workhorses relegated to the workplace and not the home. The company’s newest attempt at tackling Apple’s growing market share, the BlackBerry PlayBook tablet computer, was announced on September 27, 2010, and will run on the BlackBerry Tablet OS, which is based on QNX Neutrino. The company has acquired Swedish firm The Astonishing Tribe, which helped design the Android UI, to completely overhaul the UI for its tablet and smartphone devices.
Bad news for Research in Motion surfaced last week when banking giant JPMorgan Chase & Co. (JPM: Charts, News, Offers) began giving its investment bankers iPads as an extra mobile tool for trading and business communications. This was particularly insulting to Research in Motion, as Blackberries have traditionally been the choice of Wall Street for eleven years – to this day, electronic brokerage E*Trade Financial (ETFC: Charts, News, Offers) still only offers a Blackberry version of its mobile app to investors. Many IT companies have also considered switching over to iPad due to a broader range of functionality over a BlackBerry, with more portability than a traditional notebook. With a one-year head start in tablets, Apple has captured 95% of this untapped market. Research in Motion and other tablet makers such as Hewlett Packard (HPQ: Charts, News, Offers) face an uphill battle if they even plan to scratch Apple’s share.
Research in Motion has an advantage, however, with a loyal corporate customer base. Sun Life Financial and the Canadian unit of ING Groep NV have already placed orders in the thousands for the upcoming PlayBook tablet. Research in Motion needs to turn the tables on Apple quickly before it becomes irrelevant, to avoid the fate of once-dominant companies such as Xerox (XRX: Charts, News, Offers), Polaroid, Motorola (MOT: Charts, News, Offers) and Kodak (EK: Charts, News, Offers), which all fell due to an inability to keep up with rapidly shifting technologies.
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
While I agree with many of the issues discussed by the author, I have to point out that he apparently didn’t do his homework: Etrade has offered it’s trading platform for iphone for at least a year now, maybe more. So to say that Etrade only offers this platform to investors using blackberries is INCORRECT!
RIMM is a company with strong fundamentals that will continue to great earnings off the fairly loyal customer base. In terms of new sales, it’s going to be highly challenged with Google, Apple, and MSFT (all platforms that have significant application developer interest), but that doesn’t mean it can’t be managed to maintain good returns even while downsizing over the long-term.
-T