Once a high-growth company – and a symbol of cutting-edge technology — Research In Motion (Nasdaq:RIMM) appears to be in a death spiral. Could it wind up like other tech implosions, like DEC, Wang or Novell?
Perhaps so.
On Thursday, RIM announced that it shipped 13.2 million BlackBerrys, which was below its own projection of 13.5 million-14.5 million. The company also gave full-year guidance for earnings of $5.25-$6.00 a share, below the prior forecast of $7.50. In light of all this, RIM’s shares have tumbled tktkt in early Friday trading.
Back in March, I wrote a piece for InvestorPlace saying that the company looked like a good short. The stock price then was $64.78.
At the time, RIM’s shares had already suffered a few big drops. In other words, a good short opportunity is not necessarily chasing a stock that has a high value. Instead, I’d rather wait for some downward momentum before moving in.
What were some of the key factors that made RIM a good short candidate? First of all, there were signs that the company was experiencing a slowdown in its business. For example, a large provider of its semiconductors, Marvell Technology (NASDAQ:MRVL), reported that business was soft.
But another critical factor was the relentless competition. Apple’s (Nasdaq:AAPL) iPhone continued to gain market share on the high end, while Google’s (Nasdaq:GOOG) Android maintained its strong growth in the low end. RIM was getting squeezed. Now, shareholders are forced to wonder: Might some of the company’s big distributors, like Verizon (NYSE:VZ), move away from BlackBerries?
When there are fundamental shifts in a market, it’s extremely difficult for incumbents to make the necessary changes. Unfortunately, RIM has been showing little innovation or creativity.
Is the company still a good short? To me, that trade still looks attractive. Apple and Google will certainly not let up. At the same time, Microsoft (Nasdaq:MSFT) and Nokia (NYSE:NOK) have teamed up to bolster their own mobile offerings. This will provide even further competitive pressure.
True, RIM’s new tablet – called the PlayBook – is showing promise, but it is probably not nearly strong enough to reverse the larger problems. The main issue is that the company’s core smartphone offerings are losing lots of traction.
Finally, RIM’s problems will hit its major suppliers, which also look like good shorts. Besides Marvell, companies like Celestica (NYSE:CLS) and Jabil Circuit (NYSE:JBL) are likely to show weakness in the coming quarters.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
