I wrote a post this past week on Seeking Alpha about 2 Technology Companies That Are Struggling For Market Share. The two companies in question were Nokia (NOK) and Research in Motion (RIMM). I stated that RIMM’s earnings estimate of $7.50 a share was optimistic at best. There was no way that the company was going to hit those targets based on its falling market share and declining Blackberry sales. Research in Motion reported earnings today and the results were downright disappointing.
Research in Motion’s sales revenue came in at under $5 billion dollars. That is incredibly disappointing since Wall Street was looking for $5.4 billion dollars. The half a billion dollar revenue shortfall was not even the most disappointing part. Research in Motion lowered its earnings estimates to $5.25 from $7.50. That is a 30% drop over the previous forecast. Investors have abandoned ship and have given up on the stock. Research in Motion is down 21.5% today and now trades at $27 per share.
Readers of the blog know that I recommended investors buy shares last summer and suggested that they sell the stock last December when it was in the $60′s. The stock looked too pricey to me and a fall appeared likely.
Now that the stock has fallen off a cliff, what should investors do now?
I would sit on the sidelines for a few more days and wait for the stock price to settle. At $25 a share or below, I would be willing to take a chance on RIMM. I would not invest heavy but I would consider a 1/3 position just to see how things play out. There are still several positive attributes that the company has. The company still has $2 billion in cash and no debt. The Playbook is selling reasonably well and a new Blackberry phone is due out soon. The stock is no longer a high growth stock but at $20 a share it is not a bad value play.
I will be keeping an eye on Research in Motion to see how the stock behaves over the next week.
RIM also announced layoffs “due to product delays” which sounds like a weird reason to lay people off unless they’re in big trouble. Who knows, the delays are due to upgrading chipsets so they may yet release a competitive product and make a comeback.
I can’t see myself purchasing RIM. The only real proprietary tech they have left is that their phones have an encryption chip that gives them a lock on the government and government contractor market. I can’t see that competitive advantage lasting much longer.
It’s too bad you didn’t short RIM before the earnings announcement.
Our company is standardized on Blackberries, but we’re looking seriously at Androids. Blackberries haven’t evolved in years and the screens are way too small to be useful. I’m not a buyer of RIM, even at $20. I believe they will continue to lose market share.
I have to admit that I’m a technological luddite, so Research in Motion would be in my “Too tough to figure out” pile. It’s tough to do a future cash flow estimation of a company that has so many variables. But that doesn’t mean that it’s not going to be a great deal at $25 a share. It’s just too complicated a business for a slow guy like me. I’m curious, though, to see how it does.
RIMM is a dead horse in the mobiles market. It lacks the benefits of scale and to be honest their products have NEVER been competitive. They have succeeded in the US market as protectionism pushed Nokia out of the game in the US. They tried to get some traction in the EMEA, but simply cannot keep up with the development pace pushed by Android, brand image of Apple, and the somewhat struggling giant Nokia.
If you want to make a risky bet on the mobiles market, then go for Nokia. They have all the assets, but they just need to get their act together. The N9 shows that NOK can still make fantastic hardware – their products wipe away the competition is many fundamentals like cam quality and RF sensitivity. If they get their SW act ready for prime time with WP and Linux, they will be a strong contender. They are STILL the largest company in the business, even though now in a serious downtrend, and despite the bad press pushed by competitors PR agencies and US protectionism.