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I Still Think RIMM and BB10 Are Doomed

In recent posts over the last few months (here, here and here), I have been decidedly bearish on Research In Motion (NASDAQ:RIMM) and its new line of BlackBerry 10 devices.

Readers shouted me down on my lack of understanding in these gadgets, citing their great appeal as secure business tools and not toys. The share price has proven me wrong with a 40%-plus run in the last three months.

A smarter man would probably just shut up and admit he was wrong. But I want to double down on my bearish case for Research In Motion stock.

BlackBerry 10 might prove naysayers wrong and the OS might be unveiled in a few weeks with great features and speed … but frankly, it’s too little too late.

Here’s why:

Patent Fight Ends Badly: Nokia (NYSE:NOK) and RIMM recently made waves with a deal over a patent dispute that involves a big one-time payment to NOK. Wall Street did not respond favorably, causing Research In Motion stock to sell off sharply on the news — and though the stock rebounded slightly after Christmas, it remains 15% below pre-headline levels. The payment includes $65 million up front with more to follow. Granted, RIMM does about $3 billion in revenue per quarter, so this is a drop in the bucket, but it’s hardly good news going forward.

Service-Fee Worries: Soon after the settlement, downward momentum was fueled again by headlines — this time from worries about fees. Specifically, RIMM charges wireless carriers like AT&T (NYSE:T) and Verizon (NYSE:VZ), as well as major corporations, to route secure, encrypted messages around the globe. The company has tried to backpedal, stating changes would be gradual over the long-term, but some remain very concerned. A recent Wall Street Journal report indicates service charges account for one-third of RIMM revenue — and any disruption here caused by a rate hike could be substantial to the bottom line.

PlayBook Ain’t Playing: I remain convinced that tablets are going to be the biggest driver of future gadget sales and will be the biggest battle to be fought among the tech titans. Unfortunately, while Google (NASDAQ:GOOG) is forging ahead with its Nexus line, Amazon (NASDAQ:AMZN) has the Kindle Fire and even Microsoft (NASDAQ:MSFT) is seeing lukewarm success with its Surface tablet, RIMM is dead in the water. CNN Money reports it shipped a meager 255,000 PlayBooks in the entire fourth quarter. Even if BB10 gets RIM back into the smartphone game, it will never compete on the tablet front.

What About Apps? BlackBerry continues to lag hopelessly behind Apple (NASDAQ:AAPL) and its app universe. And it’s even behind Google’s Android. Yes, RIMM is working on it frantically, but it will take time — time that BlackBerry can’t afford to lose if this is indeed going to be its rebirth in 2013. And by the way, Android and iOS aren’t going to stand still,  so RIMM needs to not just ramp up its app store to the current playing field, but try to catch leaders that continue to run at top speed.

Negativity Over Leaks: Say what you want about the tech blogosphere and leaks of new products, but the fact is these rumors and pre-reviews matter. And unfortunately for RIMM, the leaks are not favorable. Take this cutting Gizmodo headline: “Leaked BB10 Screenshots Look Like Every Other OS Except Crappier.” Ouch. There are favorable reviews out there, too, but the sharks already are in the water.

Still No Profits: The biggest reason I remain bearish is the bottom line. Estimates show Research In Motion will remain unprofitable through fiscal year 2014. Sure, maybe the BB10 launch will be better than expected — but it needs to blow the doors off to make RIMM profitable again anytime soon. That cash burn dips into growth and research potential, which is horrible for a company that is already playing catch-up. And for those who think BlackBerry users are eagerly awaiting this relaunch to buy in earnest, consider that in the last quarter, RIMM lost 1 million subscribers. Doesn’t sound like waiting in the wings as much as abandoning ship when folks give up the old OS altogether.

Do or Die for RIMM: Furthermore, because of this lack of profits, there is no room for error here with BB10. If the devices unveiled at the global launch event on Jan. 30 do not catch on instantly and with enthusiasm … there is no plan B. The brand will never recover. So if you’re thinking of investing, remember that your choice is a stark one: Either BlackBerry’s newest incarnation will wow techies and investors alike, or the company will circle the drain until it disappears. There is no in between.

If you’re a believer and want to stake your portfolio on your love of this device, feel free. But the risk-reward is unpalatable in my book — even if I didn’t think that RIMM was doomed.

Which I do.

Related Reading

  • Steve Kovach, while admitting some strengths in the Z10, writes that, “Like most analysts, I only think BB10 has a modest chance of success. (Business Insider)
  • Leaks to some great advance shots of the purported BlackBerry 10 L-Series. (Engadget)
  • Blackberry’s last stand: One analyst says, “I still want to see RIM succeed, simply because competition engenders innovation, so the more choice for the consumer, the better. However, I can’t really see that a fancy interface is going to be enough to turn the firm’s fortunes around.” (Metro)

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing he held a position in Apple but no other stocks named here.

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Comments
  • http://bamza.ca/ Cyrus Gorjipour

    I believe that BB will surprise even its harshest critics with BB10. We shall wait and see..

  • charlie2010

    Kudos for admitting you blew the $6 to $12 stock run up, most analysts think readers have short memories, analysts are losing a lot of credibility with their doomsday predictions on RIMM.

    Regarding your points above:

    1]Patents: RIMM has as big a war chest of patents and lawyers as anyone on the planet, its more a strength than a liability.

    2] Service fees: RIMM stated its service fee plans months ago, for some reason analysts started saying they were ‘worried’ now, without knowing them this is a real stretch to downgrade the company and suspicious seeing as they new about it months earlier.

    3] Playbook: listen to the media and analysts and they call it a failure, listen to people who actually bought one and you will find the response remarkebly positive. If consumers who bought it like it and it met initial sales expectations why call it a failure?
    4[ App: they do have far less and this is their greatest weakness. Developer response to BB10 has been overwhelmingly favorable though, its a complete 180 from bb7, and that report indicating blackberry developers make the most money certainly helped, 70K apps at launch will be more than enough for me and the majority of users out there, the abilty for android developers to port apps over to BB10 in a day is a major strength too. With 40% of iPhone apps not being downloaded its safe to say app quality is important as numbers.

    5] Leaks: BB10 is getting more media attention than the most expensive paid advertising campaign in history by microsoft windows 8, its building awareness and hype with no cost, you cherry picked a bad article.

    6] no profits: nothing good about that. Personally I dont know how they managed to keep so many users and not lose more money before the launch with the oldest OS on the market, new management appears to have their act together and the downsizing showed they can make tough decisions.
    7] do or die: nothing terribly informative with that paragraph…if they dont sell phones they wont make money…really? Judging by the reviews of analysts who were lucky enough to test drive bb10 its safe to say they hit it out of the park and there is a lot of pent up demand.
    Looking forward to your next article on RIMM in the spring, again, kudos for admitting you blew the call, I disagree with you but respect your opinion for stating this, I wish more journalists would quote previous blown calls when using analysts as sources of their articles….maybe they wouldnt quote or write them?

    • http://twitter.com/JeffReevesIP Jeff Reeves

      Excellent counterpoints – thanks for getting the other side of the trade. I particularly agree with your point on BB10 buzz vs the ill-advised MSFT marketing campaign. Whoever is dumping hundreds of millions into the airwaves/internet to promote Windows 8 and Surface needs to prove the ROI or resign.

      We’ll see whether things look the same a month from now… and you can bet I’ll weigh in regardless of whether I’m right or wrong. Thanks for reading!

      • kinny

        Perhaps too late to the thread to get a response.

        Re 2]. So, service revenue makes up 1/3rd of revenue, currently. Looking back at 08, 09, 10, service rev was closer to 1/8th of total revenue. I’m assuming this ratio has increased to 1/3 due to decreasing device sales (people waiting for bb10 or switching). Correct, or am I missing something (ex a significant increase in service revenues in 11, 12)? If correct, and RIM is able to achieve strong device sales again, then isn’t there much less risk to total revenue here (ex: 1/2 or even a smaller portion of 1/8 = 1/16 or less maybe 1/32 or revenue at risk)?

        I only own a work device, but if I ever do buy a personal device, and thinking about finally doing it with the z10, I would certainly want to see what added security a few $s / month would give me if I want to bank, trade, make purchases, etc on it (no idea if bb is actually safer in this context but it does have that perception).

        Re 6] Again looking back at 08, 09, 10, if you take away a portion or even all of the service revenue (and assume it all hit the bottom line) I believe RIM would still have been profitable each year. When they had a great product (which they now appear to have again) they were able to achieve profitability w/out this service revenue. Give it 1/2 or give it give it 75-85% of this revenue through service or other sources and they become quite profitable.

        I’m not super bullish.. yet, but I am really reaching to understand the overly bearish perspective (If you believe the bb10 will be fully supported by carriers, the important apps get developed, most important the browser and device overall does what it claims it will do – i will only know once i get my hands on it).

  • http://twitter.com/CharlesSizemore Charles Sizemore

    Jeff, I think you’re basically right here. BB10 may end up being the greatest thing since sliced bread, but they’re going to have a hard time digging themselves out of the hole they dug with multiple years of serial product delays and lackluster hardware and software both. And let’s not forget colossal failures like the multi-day service outage on BES and BBM. It’s hard to recover from that, no matter how great your product is.

    There is room for a third competitor. No one, not carriers, regulators, vendors,etc. wants to see a two-company duopoly in smartphones. But Microsoft would seem the better choice here. RIMM’s selling points (better security, etc.) simply mean less than they used to, as enterprises are adapting. And they missed the boat with BBM messenger. That was (and still is) the best mesaging service out there. But it only matters if your friends use it, and since it’s limited to RIMM subscribers, not too many do anymore. The fact that they didn’t sell it as an app in the Apple and Android stores is yet another reason that RIMM shareholders should demand management’s heads on pikes. That was a valuable asset…totally squandered.

    • dk519

      Do you even know how BBM works?

      • I am the smrt

        This Charles guy knows nothing. He is very uneducated with respects to RIM’s products and should not speak any more as he is embarrassing himself.

  • http://twitter.com/pocius Hocus Pocius

    You’re completely right, of course. It’s odd that the investment world actually thinks RIM is not dead in the water. I would think that your position would be the majority one.

  • Mnemonic

    Yeah, looking at the charts, RIM have done pretty well over the last 3 months. I don’t have a crystal ball and have no idea what will happen to RIM share prices in the future, but as a consumer and developer I’m sure looking forward to the BB10 platform. The tool set, Qt mobile (C/C++ and QML/Cascades) are first class. The operating system (QNX) is orders of magnitude better than what’s available today. It’s nothing short of a pleasure using the BB10 dev tools, and I look forward to releasing apps for this platform.

    In regards to the PlayBook – yeah, it doesn’t feel like a finished product (I have two). For some dumb reason, RIM thought it could get away with not using GPU hardware acceleration THROUGHOUT (not just for the main GUI). As a result, you have things like the Blackberry App World which are laggy and jerky. This completely spits in the face of good UX (User eXperience). However, RIM have promised a BB10 update for the PlayBook which will hopefully resolve these issues. The hardware itself is terrific (although could do with a higher resolution screen).

    I certainly hope RIM will flourish, as it would be such a shame to see such technical marvels (BB10) go down the drain.

    • vertical2010

      Funny you should mention QNX – it’s everywhere. Already in place in millions of autos, power plants, appliances, etc. The latest versions for autos offers voice recognition and numerous features. (http://crackberry.com/press-release-qnx-announces-release-qnx-car-platform-20).

      RIM is now the 100% owner of QNX software. I think in the near future we will see it all coming together with truly USEFUL mobile control devices (previously known as phones and tablets) where we will use voice commands to control and monitor systems in our houses, appliances, cars and even in-home medical devices, not to mention of course all communication and social applications.

      Everybody (me included) is getting tired of the generally useless apps and uninspired (and insecure) Android and iOS operating systems. Time to make these devices more useful. Integration with QNX everywhere will do exactly that, both for business and individuals.

  • Ud B Obsessed 2

    Whomever wrote this blog is an IDIOT!

    As an insider, I can attest RIMM will prevail with BB10
    It’s not faith… it’s pure numbers!
    Charlie… points well made!

  • windycity8045

    I am not exactly sure why folks think RIM has to hit a home run out the gate with BB10. The more realistic scenario is that BB10 will stem the bleeding for RIM and take them out of intensive care. All BB10 has to do for RIM is keep the BB brand in the game and relevant and all indications are that BB10 is good enough to do that. Quality does matter, and while the BlackBerry brand has taken a beating in the past few years, there is a tremendous amount of goodwill out there even from loyalists who have jumped ship to IOS or Android. Enough of these loyalists will give BB10 a second look and IF they like the product, they will switch back to the BlackBerry brand. RIM does not need to claw back every subscriber lost. They just need enough of them to stay in the game and that’s a low bar if BB10 is as good as preliminary reviews indicate.

  • http://twitter.com/RandyFurlotte Randy Furlotte

    I’m in the IT world. There are very, very few people that I know or work with that want anything other than a Blackberry. BB’s run business. iPhones are toys. Touch screens suck, so I can’t see RIM losing it’s enterprise market.

    • ChetanTakyar

      “Touch screens are toys” Excuse me? I rely on a Nexus 4 for work no and I use swype I am so much faster on swype then I am on a keyboard,Besides who spends typing up an email on phone for half an hour?

    • generalj

      What kind of IT world are you working in… There are very, very few people that I know or work with that want a Blackberry. And I work at Waterloo, Ontario…

  • swaxolez

    Funny how good things get put down sometimes. I have both a Nexus 7 and a Playbook and wanted to watch a CNBC flash segment last night. Guess which device was able to watch it without any problems? Playbook is remarkably good – looking forward to BB10 on it.

  • I am the smrt

    Blackberry 10 is going to kick but this year. I am a die hard fan who like many others…have been waiting for a product like this to come out. If they didn’t release the bb10 this year, they would have died out quickly. The Playbook that helped keep many fans staying longer. The Playbook is a very good tablet. it runs very smooth and can handle a lot. Browsing on the internet is faster than any other tablet on the planet and you do not need many of the so called “needed services” which apple products require. usb and hdmi connections are one of the easy benefits to the playbook. all of this plus many other features is what the bb10 will have so it is a win win situation. they have all the apps you need..with a lot of app developers who love the new os as it is a dream to work on plus finally Rim is finally in the works with getting netflix on board. The screen size is bigger than the iphone and the multitasking os is better than any other phone out there not to mention very high security. Now all the government agencies who were thinking of switching or already switched are starting to rethink everything over and now doing testing.

    There is absolutely no reason why rim would not do great this year, especially now that the two bozos who who were running rim stepped down last year. I hate to say that but their pride clouded their judgement making them completely oblivious to what the competition was doing. Well that is all over now. Rim is streamlined and has taken time to come out with a fantastic product which will gain back many of their old fans and many new ones!

  • http://twitter.com/MediaCritiquer MediaCritiquer.com

    No one will really know until they launch BB10. Glad to see positive reviews now though…

  • RickyBerry

    Jeff, you are not original in your opinion, that is the problem. Your analysis is full of the run-of-the-mill blackberry hater points, that are not even balanced or well researched. The common theme among all these naysayers is insisting without even researching what the new platform is all about, is certainly dead on arrival. For example, you obviously do not know that Android apps can be ported over to BB10 easily, and that is why it has the most number of launch apps that any OS.
    Furthermore, your points are all qualitative, you make no attempt to crunch the numbers, and if you did you would see that RIMM’s enterprise value is only $3 billion with a subscriber base of 79 million and still generating cash flow.

    In any case, RIMM investors should be happy for the critics to be as harsh in their words as possible, in order to keep this stock at this cheap level and just load up on it. The short interest keeps rising even as the price rises, the bad-mouthing is getting intense… can guess that there are a few big short sellers with sweaty palms, asking themselves who is on the other side of the trade =D

  • John

    So ur saying no new mobile OS will have a chance hmmmmm , maybe you should tell that to Ubuntu coming in 2014 and Tizen coming with Samsung this year . No doubt you are an isheep so take your crap and Head back to your herd as you may lose your spot in line FOOL!!

    And get your facts straight stock did not dip on the Nokia settlement actually went up the day of announcement .

    • ChetanTakyar

      Fucking RIM cocksucker calling other people fanboys when you yourself are one.

  • Dennis

    I bought four iPhones for the wife and kids. I kept my BB 9800. My son uses a Kindle Fire, my wife an IPad2, and I have a Playbook. I have to say the Blackberry products work great. Work all the time. And still – after all these years – are sharp looking. I think they’ll fare better than the author predicts.

    I do agree that the importance of Apps can’t be understated. I would also criticize BB for publishing many crap-apps in its store. Apple does seem to have a better grip on app quality control.

  • Mr. XYZ

    When Bush lie to his people and to the world about WMDs in Iraq, a journalist told him “I don’t think you can invade Iraq”. Bush’s response was “Who cares what you think. Same goes here, who cares what tou think …

    • http://twitter.com/JeffReevesIP Jeff Reeves

      Uh, thanks? Unless you’re pointing to Dubya’s myopia, lying and hubris — which led to an expensive war that never found WMDs and drove our deficits sky high — as an example of how people should act all the time. Which I sincerely hope is not the case.

  • GreenMan

    Laugh – I nearly dropped my biscuit. I’m buying some more
    shares in RIM today.

  • Alexander

    This coming from an editor who once held a position at Apple. I couldn’t tell from this article *sarcasm*. Taking this into consideration he would prob be aware of the state of Apple in 2003. Then again he was prob making the same hollowed assessments to their future.

  • Steven CArter

    two words come to mind to you….

  • brownstone706

    Awful read. This post simply quotes several other terribly written articles that predict the death of Blackberry. The author offers no relevant research, analysis, or even educated opinion to support his case. Just the same regurgitated death knell as all of the other clueless cell phone nerds………

  • anonymous

    Once again, another useless inaccurate crackerjack article. Complete garbage. Nice try though.

  • Kevj3495

    I’ve always like blackberry and been a fan but with them pushing the launch back and continually leaking devices i’m over the whole thing! I AM A BUSINESSMAN “Sort of a impatient one at that.” So that being said i plan on waiting until the launch and just because Rim has made me wait so long already whats a couple extra weeks to wait for the new Samsung Galaxy which will undoubtedly prevail and crap all over BB10. I hope they fall flat on there face just for playing with my emotions since november

  • Jeff2211

    The playbook was the worst piece of hardware i have ever bought