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BlackBerry Limited Message Board

  • wyn.moore wyn.moore Dec 23, 2012 4:46 PM Flag

    RIM is Coming Back With a Bang!


    My family's table talk this weekend morning took a sudden unexpected turn from politics to smartphones. In no time, we all found ourselves arguing in defense of the phones each of us owned. However, my father's unequivocal support for his BlackBerry is what motivated me to write today. We tried hard to convince him that the days of Research In Motion's (NASDAQ: RIMM) BlackBerry were over but he, being an ardent BB fan, remained steadfast in his beliefs.

    He works with a private security services and supplies firm and the biggest point he raised was the level of security the phone itself provides. According to him, the phone provided all the necessary enterprising solutions as it connected every employee of the company in a well-integrated communication network via secure calls, BBM messaging and emails. We argued that he could get the same on other phones too but he insisted that the level of professionalism and security you achieve with a BB network is unmatchable. Putting it in his words, "you need to own it to know the difference." While you and I may not fully agree with him, to say RIM is "no more" will be a fallacy. The biggest proof of it is the company's latest quarter earnings report -- a real-life proverbial example of every cloud has a silver lining. Here's how:

    Old but Hot? Twenty-Twelve was a big year in the smartphone world. The second half of 2012 gave the world the much-awaited Apple (NASDAQ: AAPL) iPhone 5, Samsung's Galaxy SIII, Nokia's (NYSE: NOK) Lumia 920 and LG's Google Nexus 4. Imagine, with all those newer, faster phones available in the market with wider application ecosystems of iOS and Android, RIM still managed to sell over 6.9 million old phones!
    Improving Cash Position: Don't you think that a company like RIM that hasn't launched a new hardware in over a year and has been returning losses in the last three quarters would be burning cash to survive? At least I thought so, until the company announced that cash in the latest quarter actually grew by more than $600 million to $2.9 billion, even after RIM funded all of its restructuring activities.
    Margin Improvement: Latest quarter gross margins were also up by almost 400bp, from 26% last quarter to 30% this quarter. Although, R&D spending increased by $27 million, indicating RIM's heavy investment on its final lifeline BB10, SG&A in fact decreased by $69 million from Q2. RIM management had guided beginning this year of its plan to achieve $1 billion in cost savings by the end of fourth quarter, but seems like the aggressive cost cuts paid off and the target has been achieved a quarter in advance. For that, kudos to the management!
    Transcending North America: The region that majorly contributed to RIM's downfall was North America -- the US and Canada. In the latest quarter, the US, which was once the biggest market of #$%$, contributed only 19% to RIM's total revenues, down from 22% in Q2. RIM's home country Canada contributed only 5% to total sales, down from 8% in Q2. However, the world beyond North America, like Indonesia, South Africa and Venezuela, still buys BlackBerrys despite no black friday/boxing day sales and no subsidies from telecom providers. This is why sales outside the US, UK and Canada contributed 65% to total revenues and actually grew by 7% from the last quarter.
    Takeover Target: Six months ago when I first showed my discontentment with RIM founders/management, I also opined that RIM would make an excellent takeover target for Microsoft (NASDAQ: MSFT). RIM holds a huge portfolio of patents worth over $2 billion to $4 billion. Recent additions to this are the digital imaging patents of now bankrupt Kodak that RIM bought as part of a consortium. Additionally, no other competitor has that "security factor" and "professional feel" to its phones that RIM does, which is why it still holds a niche in the smartphones market. Billions worth of patents, so-called niche market, subscribers of over 79 million that generated over $900 million in service revenues in Q3 alone, pending launch of a new generation of smartphones, and a cheap stock all make it a lucrative takeover target.
    The Rejuvenated RIM: The recent cost and job cuts were a part of management's plan to recreate a leaner, more efficient company. Increasing cash and efficient management of working capital and inventory are all indicative of it. Ahead of BB10's launch in January, free cash flow of $645 million was achieved from selling old phones and Playbook tablets, all of which had a declining inventory in the latest quarter. Also, developers are finally taking interest in the new BB10. By the time the new phone comes out, the BB app world is expected to have grown to above 70,000 apps. It's much smaller compared to Apple and Google's ecosystems but still a good start. Remember, a BlackBerry is typically considered a phone for the serious, older, professional target market. At least, I would personally not use it for playing Angry Birds. For that matter, I'd rather buy the much cheaper Playbook.
    The Glass is Half Full! The level of optimism portrayed by the management as a whole and CEO Thorsten Heins in particular, in the latest conference call, was incredible. Heins mentioned time and again how enthusiastic he and his team (employers and employees alike) were about the upcoming BlackBerry 10 launch. He made sure his message was heard loud and clear:
    "Despite the many critics who have forecast our demise, we are strong, we are excited and we are in a position to demonstrate the next stage of mobile computing. It's a great time to be with BlackBerry."

    Sentiment: Strong Buy

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