Friday, June 17, 2011

Why I Am Still Not Buying Rim

Look at me, I created an inferior product a year after my competitors!
Everybody knows RIM is sinking like a stone, it is now trading at 5x earnings. This seemingly low valuation has tempted a number of prominent investors including Prem Wastsa to buy in. Their paper losses are growing by the day and I am very curious to find out if either investor is adding to their positions.  I myself have followed the stock closely for the last 6 months and have come very close to buying in again. Yet there is one major factor that is always keeping me from pulling the trigger.

Management. They just don't get it. They don't get how strong their competitors are. They don't get that if you are not constantly innovating, your product will be commoditized and profitability will instantly shrink. Just ask Nokia.  

RIM needs to ditch their pathetic co-ceo structure and hire a leader that is willing to restructure operations and take aggressive measures to get new products to market as fast as their competitors (the QNX superphones in particular). Balsillie is the last guy to move quickly, refusing to call the planned layoffs a restructuring, preferring the term, 'a cost optimization program' and 'a streamlining exercise.'

Balsillie sounds like he is trying to reassure himself more than investors.'RIM’s business is profitable and remains solid overall with growing market share in numerous markets around the world ...'

I feel that RIM's management is living in the past. Asleep in a beautiful dream when all clients cared about was a secure messaging device. Management needs to wake up.

Disclosure: None, at this price level and with this management team.

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Paul said...

Despite any flaws the company may have strategically and with their management, as someone who worked in the corporate world, EVERYONE still uses Blackberry as their work phone of choice. The fact they chose to enter the tablet market seems like a bizarre move, that's for sure, but their handsets can't be beat when it comes to usability and portability as an e-mail device.

hardcorevalue said...

hi paul,

I know its still very popular but will it still be in 5 or 10 years from now?

hardcorevalue said...

Prem's thoughts on rimm:

Research-In-Motion is run by two guys, Mike Lazaridis, who's really the founder, and co-CEO Jim Balsillie, these guys have taken the company from 0 to $20 billion, and in our experience, that's not easy to do. It's very competitive, and yes they have some challenges ahead of them, but the guys who have taken it from 0 to $20 billion will be able to figure their way through this.

Of course, this is an excellent point from Prem (no suprise their) but I still have to disagree with Prem (that feels weird for me to say!).

Example, The iphone was released in January 2007. RIMMs had nearly 5 years to catch up with a better phone. Check out the new line up of blackberry's. not impressive compared to android and apple. RIM is losing the consumer market, business is still strong, margins are compressing. Still could be a lot of value in the stock, especially with a takeover and the massive amounts of patents but I'd prefer some new blood in there.

RIMM reminds me of the soviet union in the late 80s.

Christian said...

Curious about your thoughts on RIM at this price just below 17 dollars. I consider myself a value investor but see a bit of turmoil ahead in the market as a whole and also don't think we will see a turnaround until the QNX is released. Do you think this is foolishly trying to time the market?


hardcore value said...

Good question Christian, I see RIM everyday on the new 52 week low list. I try to spend the majority of my time identifying good businesses and not trying to guess where the market is going to go. Although I always keep an eye on how cheap the stock market is overall (see my article on the market's valuation for good links), this is important when deciding how much of your portfolio should be in cash.

As for RIM specifically, at some point it will (or already does) have value. I get distracted by how poorly their product and more importantly their ecosystem is. I can't bring myself to buy when I think management is doing nearly every thing the wrong way.

There are a number of these tech companies (RIM, HPQ, MSFT) that are really cheap and if I had strong faith in management's skills I'd be more likely to buy. I'm happier owning berkshire than watching RIM flounder.

Anonymous said...

Blind luck got these guys where they are. I've heard the horror stories from a dozen years ago. Now that they have to actually perform, they fail.

p.s. @ Paul. NO, not everyone chooses the BB for work.... not even close.

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