Is RIM a Good Investment?

Research In MotionResearch In Motion (RIM for short) has been an icon for Canada with their Blackberry but the fierce competition it has faced since Apple came out with the iPhone has challenged their market hold on the smartphone. Not only has Apple taken a bite of their market but so has the Android based smartphones. RIM’s stubborn management held on to their vision for long only to have to give away the reign to a new leadership in an attempt to revive the company and the brand.

RIM is far from a dividend investment but with their war chest and low P/E, many are trying to assess if there can be an opportunity here. Some do have faith considering Fairfax Financials Holdings has increased its ownership to 10% of the company by now.

Best Hardware or First To Market?

The best hardware doesn’t always win. It has been proven over many decades and that’s why it won’t matter if RIM comes up with great hardware and a great Operating System (OS).

  • Remember the Betamax vs VHS days?
  • Remember the HDVDV vs Blue-Ray format?
Interestingly, RIM was first to market and showed immense innovation. From that, they built a massive company. Apple came next with a revolutionary touch phone but more importantly it introduced a vibrant ecosystem to differentiate them from the status quo model.
Conclusion: However remarkable the hardware is, it probably won’t make a difference unless it offers something new.

Ecosystem – There is an App for that

Apple released its iPhone and with it came a new ecosystem for users to interact with and be entertained for a very low price. Just like how Apple introduced individual songs for your iPod, the 99 cents app had a low entry point for users to embrace.

Having a good hardware, doesn’t necessarily lead to having the apps you want. In fact, some of the Samsung phones on the Android platform have better reviews than the iPhone but they don’t move the needle. There are many more Android devices than there are iOS devices but the Android devices are VERY segmented making it very difficult for developers to build for all versions of the Android OS.

Developers will prioritize delivering an iOS product followed by an Android device. Due to the fragmentation of the Android OS, only a subset ends up being supported. Where does that leave developing for the RIM OS? If they don’t make money with RIM, they won’t build anything. Few developers will have the expertise and it makes for a very small ecosystem.

The ecosystem battle is currently between iOS and Android but there is a new contender just around the corner with deep pocket; Microsoft and its Windows 8 Metro. If they can do what they did with the Xbox to their phone line, they may have a chance to disrupt the current players but that still leaves behind RIM …

As a comparison, iOS has almost 30% share with their OS and Android has over 50%. Yet, profits for Apple soars compare with Android.

Conclusion: RIM is so far behind in building an ecosystem, it will have to partner with someone else …

Living Room Ownership – Heavy Competition

Where is it all going? Aside from the telecoms profiting from our need for being connected at all time, smart phones are blending with many other devices such as computer and televisions. Is the innovation going to be within the smart phone or within the connectivity with other devices? How different is your iPad from iTV really? iTV has been around for a while and all you get is an HDMI connection basically when you really think about it. What if that was integrated in the TV in the future? A real Apple TV. Wouldn’t that make some SONY executive shiver in fear 🙂

Let me ask you; what you spend the most time doing with your smart phone?

  • Talk on the phone?
  • Texting?
  • Using an app?

Based on the usage, what’s the next evolution? what’s the next step for what you do most?

Conclusion: RIM has no ability so far to expend or connect to other devices without a major investment or partnership. All current heavy weights own an operating system (Windows, Mac OS X, Chrome/Android) with significant market share (except for Mac OS X).

Hint: Amid the war, the telecoms are cashing in …

What does RIM have?

Cash and patents are at the top of the list. It’s clear that RIM has built a great set of patents over the years. Patents alone don’t raise a stock price since they don’t tend to generate a lot of revenue. I don’t know of many litigation team that has positive earnings on a regular basis 🙂

Aside from cash and patent, RIM knows how to manage a secure communication infrastructure. It’s a service that could be in demand.

Supporting Adobe Flash with their operating system isn’t going to make a difference. It has been a big advertising point for their OS but unfortunately, HTML5 is what the focus is on. Along the same line, web sites are adjusting to the Apple iOS limitation.

On the other hand, there is a strong contender in the market that many are not focusing on and it’s Samsung. Have you been to one of their store?

What I have not done and it would be an interesting exercise is to assess the value of their patent and cash and if it’s worth more than their current share price. Otherwise, it takes a few years for a company to re-invent themselves and make the necessary internal adjustment. For now, I believe it’s a speculative investment with a lot of risks.

Readers: What’s your take?

Disclamer: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your decision at your own risk – see my full disclaimer for more details.

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