12-02-2012, 11:38 PM
Officially Welcomed to the 'Fest
Location: Nor Cal
Join Date: Jan 2005
Mein Auto: 330i
The salvos from each side have been firing back and forth for a couple of weeks now over Research In Motion (RIMM). Longs vs. shorts, analyst vs. analyst. It's hard to know who and what to believe when you see how twisted the facts become from one side to the next.
RIM can't survive. The market has left it behind, and it's a case of too little, too late. Apple (AAPL) and Google (GOOG) Android have the market sewn up and will continue to do so -- forever.
Not So Fast
1. RIM has a loyal base of over 80 million subscribers, with a large chunk of those patiently awaiting an upgrade to the new BB10 OS. This is a point that cannot be discounted. A player like Microsoft (MSFT)/Nokia (NOK) entering the segment with the new WP8 has an uphill battle in that it has to steal market share in order to be a relevant player. RIM is already in third position and just needs to build up from there. Remember that RIM was able to add users quarter after quarter without having a competitive phone on the market for the last two years.
2. The smartphone market took 15 years to sell the first 1 billion phones and analysts predict it will sell the next 1 billion in the next three years. This means there is plenty of room to grow. RIM is well positioned in "rest of world" countries, which is where a large portion of this growth will come from.
3. RIM has carrier support. This is huge for it to be successful. Carriers have expressed a positive view of BB10 and have stated clearly they need a viable third player to offset the current duopoly of iOS and Android. This fact cannot be discounted as carriers play an important role in getting these devices moving off the shelves.
4. RIM has solved the problems that drove it into the ground in the first place. A lack of apps that led to customers leaving in droves for a better ecosystem has now been clearly addressed. RIM has worked hard to foster app developer community support and continues to do so, ensuring it will launch with well over 100,000 apps. RIM announced an alliance with Appcelerator's 390,00 strong developer community to port and develop apps for BB10.
5. RIM has a new OS that has been received well by analysts, carriers, and developers and will roll out to consumers on Jan. 30, 2013. Former bearish analyst Peter Misek clearly stated that he and his Fairfax Financial group had intensively reviewed the BB10 dev alpha and beta devices and noted them "better than Android" and at least on par with iOS.
6. Last, RIM has the cash to launch this thing. It has 2.3 billion in cash on hand for marketing and launching BB10. Analyst Steven Li has stated RIM needs to only sell 18 million BB10 units to break even. Between channel fill and initial upgrades from the subscriber base, it is clear that RIM can accomplish this.
When RIM Wins, Who Loses?
With RIM having nothing left to lose to Android and iOS, anything it sells outside of the current subscriber base is eating away at their market share. So who will lose when RIM starts taking back market share? To some extent they both will; however, one stands to lose a lot more than the other.
Apple has a very loyal customer base. This base surrounds itself with all offerings Apple (iPads, iPods, MacBooks, and, of course, iPhones). These users will upgrade to the next level of phone with even the smallest of changes (case in point -- iPhone 5). Apple is really not worried about RIM -- at least in the short term.
Android, on the other hand, is a totally different animal. RIM's user base was eroded heavily by Android. Android now stands as the giant of the segment with upward of 80% of the market locked up. Android has several weak points that RIM will exploit.
1. Android is just an OS. The market share it has accumulated has been by offering a cheap OS to the likes of Samsung and HTC. RIM, on the other hand, is vertically integrated with its own OS, network, and hardware. RIM has already alluded to the fact that deals with the likes of Samsung will be on the table after BB10 launches. These phone makers have a vested interest in licensing BB10 as a hedge against Google waking up one day and deciding it will vertically integrate and no longer license to them. No OS, no phone sales. By aligning with a Samsung or HTC, RIM can quickly gain in market share (albeit at a lower margin) if it chooses to do so. It's a win/win.
2. Android is a security nightmare. It is the most malware-ridden OS on the market. This will be a factor in the next phase of mobile computing where phones do more and more financial transactions. Security breaches will not be tolerated. RIM has the most secure OS on the market, and the fact BB10 has been FIPS 140-2 approved ahead of launch is sign that RIM is still the leader in this area.
3. Samsung has some very good reasons to deal with RIM. The QNX software that is embedded in everything from cars, Cisco routers, robots, and appliances would be a good fit in Samsung's other divisions, such as home appliances and home electronics. Coupled with the BB10 QNX-based OS, there are several opportunities to push the smartphone into areas of home automation.
There is clearly room for a solid third OS in the market. RIM in the short term will retain that third position with the launch of BB10. Once established and no longer in a death spiral, the company can focus its efforts and innovations to slowly begin to target areas for rapid growth. A licensing deal will accelerate that growth.
The new CEO and his team have some plans to push the smartphone into new frontiers. However, in the short term, all hands are on deck to focus on delivering BB10 to market. Although much about BB10 has already been slowly revealed, I'm pretty sure Thorsten Heins has a few tricks up his sleeve for the January 2013 release date.
It's easy to kick this stock around as it's past performance and fall from grace has been a case study in mismanagement. Taking a clear look at the current facts and taking into account the last six months of the new management team's performance, I think it is fair to say that things have changed at RIM for the better.
I, for one, think it's a great investment at current prices and that the longs will be rewarded.