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RIM: Don’t Expect Things to Get Better

Tempted investors beware: Tech turnarounds are awfully rare

   

Back in March, I wrote a piece for InvestorPlace.com about how Research-In-Motion (NASDAQ:RIMM) was a good short-sale candidate. At the time, the stock was trading at about $65.

Even though I was fairly bearish, I didn’t expect a complete implosion. Which is what we have now: The stock is $13.38 (down 11% in today’s trading alone). Then again, Thursday night’s earnings report was horrendous. In the third quarter, earnings fell by 71% to $265 million, and revenues were off by nearly 6%.

In my March piece, I mentioned the threat of Apple’s (NASDAQ:AAPL) iPad, which was a runaway hit. Yet I had no clue that Amazon (NASDAQ:AMZN) would also launch its own tablet, the Kindle Fire. The result is that RIM has nothing to show investors except a large pile of PlayBook tablets that nobody wants to buy.

Basically, RIM is suffering from an innovation deficit. The BlackBerry 7 was a dud, and the company’s next-generation models won’t hit the market until the latter half of next year, another bomb RIM dropped yesterday with its earnings report. As a result, developers have little incentive to create apps for the platform.

It seems inevitable that the large mobile carriers, like AT&T (NYSE:T) and Verizon (NYSE:VZ), will move away from RIM handsets. Simply put, there are too many better alternatives.

True, with the corporate business, RIM does have a massive installed base of users. The company talks up its focus on security, reliability and integration with software like Microsoft’s (NASDAQ:MSFT) Exchange corporate email system.

But the problem is RIM’s customers are seeing something else, none of it good. In addition to delayed products, in October RIM suffered a costly three-day outage of its service. And Microsoft is getting aggressive with its Windows 8 smartphone platform. No doubt, it will also integrate seamlessly with Office and Exchange. Again, why does a company need BlackBerrys anymore?

RIMM share may be close to a bottom, but they’ll probably stay here for years. This has happened with other former high-flying mobile operators like Nokia (NYSE:NOK) and Palm (remember the gotta-have Pilot?). The fact is that it’s extremely difficult for a tech companies to pull off turnarounds. History shows just a few examples, like Apple and IBM (NYSE:IBM).

So, for investors tempted to buy RIMM now — with the valuation looking dirt-cheap — it’s probably still a bad idea.

Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, http://investorplace.com/2011/12/rim-dont-expect-things-to-get-better/.

©2014 InvestorPlace Media, LLC

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