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RIM BlackBerry – Writing on the Wall

June 23, 2010

Is the writing on the wall?

Hard to say, and personally I’d like to think not. Many analysts ~ only 1 that I respect because he DOES know what he’s talking about beyond just managing finances ~ and kiddies in the know throw about the verbatim that BlackBerry’s OS is antiquated. Sure they are surprised and enticed by BlackBerry 6 debuted during shareholders meeting just prior to and during WES2010; but even 45days is a dogs age in the mobile industry to await a new roll-out.

I’ve had an interesting read of the following linked Financial Post article; yes a true article and not some ridiculous high-school techie popularity contest blog entry. (That’s not what my blog is about).

Share price volatility expected around RIM earnings. Some of the most interesting article highlights are …

RIM, which reports fiscal first-quarter profit tomorrow, rose or fell an average of 14% the day after earnings over the past eight quarters. That’s more than three times Apple’s average swing of 4.2% and above the 8.9% of Motorola Inc., which makes mobile phones that run on Google’s Android software.

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Yes it looks bad if we only concentrate on the numbers but for those that only do read on I have some more for you. Most interestingly RIM still holds the largest corporate mobile industry deployment for portable communications per employee. This is not sub 1000 employee outfits but a true corporation like a national banking institution, financial investment institution or life insurance institution. This is important because regardless of the swing of all the consumer fanaticism with competing mobile handheld OS’ RIM made a name for themselves (and a huge profitable business as well) with this market long before the 7100 debuted for the consumer marketplace.

IM, which helped define the smartphone category a decade ago with mobile e-mail, has struggled to create a touchscreen device with the appeal of Apple’s iPhone or Motorola’s Droid for surfing the Web or watching video. While the Waterloo, Ontario- based company debuted a revamped Web browser in April that will begin appearing on BlackBerrys next quarter, concerns about its prospects lead to sharp stock moves, said Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto.

“There’s no doubt it’s highly volatile, there is a lot of hot money in RIM,” said Mr. Taylor, who oversees about $12.7-billion in assets including at least $30-million worth of RIM shares. There is “a constant expectation that management is not up to the task of competing in that very competitive landscape.

First notice how it says struggling to create a touchscreen device with the appeal of Apple’s iPhone or Motorola Droid. This is Apple’s 3rd year and still RIM has gained Global, not 1 continent or country, marketshare and increased profits & revenue, only dropping 1 quarter in the past 4 years.

I’ve had the pleasure of meeting Mr. Taylor while working as a contractor at BMO Capital Markets for a brief moment, and he’s very knowledgeable about RIM, their market strategy, and their products & research ~ yes he researches beyond the numbers and makes sound decisions. Tech geeks will be astounded with a great conversation about technology and gadgets.

Some more numbers for the bean counters….

RIM’s share of the smartphone market fell to 19.4% of the global shipments last quarter, down from 20.9% a year ago, according to researcher IDC, though its share of the overall handset market is climbing. Apple claimed 16.1% of the smartphone market, up from 10.9% a year ago.

RIM rose US42¢ cents to US$59.09 at 9:35 a.m. on the Nasdaq Stock Market. The stock had declined 13% this year before today, while Apple had climbed 30 %

Chief Executive Officer Buzzy Geduld said in an interview why he’s waiting to see new products before buying or selling more stock, “RIM has to do something dramatic in terms of a handset and more importantly they have to come out with some new technology“.

Hmm … while everyone else is selling off their stock … this is interesting, if not curious.

More than 100 hedge funds traded RIM shares in the first quarter, according to Bloomberg data based on regulatory filings. As of the end of March, RIM’s biggest shareholders included Edgewood Management LLC and Citadel Advisors LLC. Edgewood, a hedge fund based in New York, held 6.1 million RIM shares, while Chicago-based Citadel held 1.2 million shares.

Jim Carrier, director of marketing at Edgewood, said the company doesn’t speak to the media about its trading. Devon Spurgeon, a Citadel spokeswoman, said the company doesn’t discuss its holdings.

At least 25 hedge funds sold all their RIM holdings in the first quarter, according to Bloomberg data. They include Artis Capital Management, a San Francisco firm that sold 1.03 million shares, and Alkeon Capital Management, a New York firm that sold 549,452 shares. Artis Chief Financial Officer Rob Riemer said the firm doesn’t comment on holdings; a call to Greg Jakubowsky, an executive with Alkeon, wasn’t immediately returned.

Movement in RIM shares after earnings has been in both directions. Over the past eight quarters, the stock has dropped five times, with the largest drop being 27%, and climbed three times, with one 21% rise.

Options traders are betting the shares will swing 11.5% on June 25, the day after RIM is scheduled to report earnings at 4 p.m. New York time, according to options market data compiled by Bloomberg. RIM forecast March 31 that fiscal first-quarter sales will be US$4.25-billion to US$4.45-billion, while earnings per share will be at least US$1.31.

While 66% of analysts who cover RIM recommend buying the stock and 11% recommend selling it, 94% of the analysts tracking Apple rate the stock a “buy” and none have a “sell” rating.

Simona Jankowski, an analyst at Goldman, Sachs & Co., reiterated her “sell” rating on June 20. RIM’s “lack of product differentiation and an antiquated operating system place the company at a disadvantage in the fast-growing consumer segment,” Ms. Jankowski wrote.

Mike Abramsky, an analyst with RBC Capital Markets in Toronto, has a “top pick” rating on the stock because of the fast growth in the smartphone market and the opportunity for RIM, which gets most of its revenue from North America, to expand overseas.

“If RIM can hold its own it has a gigantic market ahead even with the presence of Android and Apple,” he said.

So how do we swallow this to how the competitions’ success can affect RIM in the consumer market? To put it simply …

RIM attracts more short-sellers than its peers. Investors taking short positions borrow a stock, expecting it to decline, then aim to repay the borrowed stock at a lower price and pocket the profit.

The number of short positions on RIM’s shares is equivalent to 3.1% of its shares outstanding, compared with 1.3% for Apple and 2% for Motorola, according to Bloomberg data.

“RIM is a stock you’re guaranteed to get a major move either way,” said Steven Li, an analyst at Raymond James Ltd. in Toronto, who rates RIM “market perform.” “So the hedge funds like to play the stock, especially in the U.S.”

Its more than just the numbers, RIM will do quite fine. Calling its mobile OS antiquated simply because it’s not the new hotness or as many developers for it does not mean its a dying smartphone and far from it. There is quite a great list of technologies proven for it, even if it lost patent cases its the way the business goes; mo money, mo problems.

As for the iPhone 4 yeah … I’ll give it a try soon enough but its PIM is seriously lacking, no equivalent BBM which today’s earthquake tremors felt across Ontario, Quebec and even in California proved its worth with quick, efficient communications, and AutoText the one key feature that would keep me on the iPhone if it had it.

Enjoy your mobile, whatever it may be.

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  1. July 20, 2010 at 8:01 PM

    this is one of the great articles that has helped me a lot thank you very much Blogging

    Like

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