By Benj Gallander and Ben Stadelmann, editors Contra the Heard
As hard core contrarians, we've been asked about Research in Motion (RIMM) a zillion times. We have acknowledged that its been on our watch list, and that in many ways it was a compelling prospect.
But the assessment was always that there was no hurry to take a position. That long wait has ended and we have now purchased the shares.
There is loads of analysis floating around about this company, picking
apart everything from trends in inventory for various carriers to
computations on the value of the portfolio of wireless patents.
That´s all important, but this purchase decision was based more on an appraisal of the bigger picture.
demise has been so relentlessly newsworthy, it often seems that
predicting its death has become a national sport. Such vehement
condemnation is usually reserved for oil or cigarette companies.
In the case of the Blackberry their offense seems to be more
in the category of a fashion crime. So a key criteria was to wait until
RIM´s problems were no longer front page news and for the piling on
frenzy to abate. There are still plenty of negative stories, but they
have mostly retreated to the business section.
sign occurred in September when revenue for the quarter of $2.9 billion
handily exceeded analysts´forecast of $2.5 billion.
conventional wisdom was that many more subscribers would leave the fold
due to a lack of new product. Instead subscriptions increased, bolstered
by improvements in overseas markets.
Normally, we don't put
much weight on an up tick in a single quarter, but for RIM this broke a
very long string of deteriorating results that could not even meet
reduced guidance. We also must note that having $2 billion plus in the
bank and no debt is the kind of thing that still excites us.
the largest risk is that the corporation has essentially bet the farm
on the roll out of a new suite of products next March.
is a flop, it´s hard to see any kind of viable Plan B. In that scenario
RIM could be carved up and sold for its salvage value. Estimates vary
widely, but something in neighborhood of $6 a share seems conservative,
though that would still be a crapshoot.
The view here is that if
it receives at least mildly positive reviews, RIM will have an
excellent opportunity to sell to its 80 million strong subscriber base
that has been deprived of new product for ages.
If CEO Thorsten
Heins can continue to drive innovation with its smartphones, and not get
distracted by escapades such as the Playbook fiasco, then some positive
momentum can be built. If that happens, then the shorts, who have had
all the fun over the past couple of years, will start to feel the heat.
a sell target is exceedingly difficult. Previous highs are virtually
meaningless; RIM´s early domination of the smartphone business cannot be
However if the enterprise can maintain its
reputation for excellent security (they just won security clearance from
the U.S. government for the BB10) while producing stylish and
functional devices for a global audience, a return to the $22-$25 range