This year, it seems the only news from Research In Motion (Nasdaq:RIMM) has been bad news. The latest bombshell came in late April when the shares plunged a grueling 14% to $48.65.
The reason was that RIMM downgraded its first-quarter earnings expectations. Keep in mind that it was only March 24 when the company first warned about first-quarter profit.
Yes, the tech industry can be brutal, especially when your rivals include Google (Nasdaq:GOOG) and Apple (Nasdaq:AAPL). While RIMM has always had loyal investors and analysts, the confidence is certainly in peril.
But can the company get its mojo back? Let’s take a look at the pros and cons:
Pros
The enterprise. The BlackBerry is entrenched in thousands of corporations. Over the years, RIMM has added security as well as integrations with major business applications, like Microsoft’s (Nasdaq:MSFT) Exchange. The company also has extensive relationships with all the major carriers.
Valuation. After several big drops in the stock, RIMM’s shares do look cheap. The price-to-earnings ratio is a mere 7. The company also has about $2.3 billion in the bank.
In light of the low valuation, it may even be tempting for management to do a leveraged buyout. Or perhaps there could even be a takeover from Microsoft.
The market. No doubt, the mobile industry is likely to continue at a torrid rate. According to research from Gartner, the forecast for worldwide smartphone sales are expected to spike by 58% this year to 468 million devices.
Cons
Transition. It’s inevitable that a tech leader will come under pressure. It’s the so-called innovator’s dilemma. Unfortunately, many companies fail to make the necessary changes.
This appears to be the problem with RIMM. For example, its new tablet, called the PlayBook, is underwhelming. It does not even have a native email system or calendar (instead, you need to use the PlayBook browser to access these services).
Management. While co-CEOs Mike Lazaridis and Jim Balsillie have built a great company, their recent actions have been questionable. Consider that there have been some delays in newer smartphone models. Moreover, the handling of the first-quarter forecasts is a big concern. How close is senior management to the business?
Interestingly enough, in a recent interview with the BBC, Lazaridis abruptly left because he thought the interview was not fair.
Apps. Because RIMM’s smartphones have various technologies, it is tough for developers to create apps. This is certainly not a problem with Apple, which has more than 350,000 apps. Google also has more than 150,000.
RIMM? The number is about 25,000.
Verdict
There could still be more downside for RIMM shares. Because of the delays of new products, this will hurt RIMM’s relationships with the carriers – which could have a long-term impact on sales and profits. Even worse, it looks like Apple and Google devices are starting to make headway in the enterprise market.
Thus, it is hard to find any catalysts for the stock. The cons outweigh the pros.
Tom Taulli’s latest book is “All About Short Selling” and his Twitter account is @ttaulli. He does not own a position in any of the stocks named here.
