Thursday, 20 January 2011 13:44

Blackberries Lost More Market Share Than We Bearishly Anticipated While RIMM's Share Price Spikes: Is It Time To Revisit the Bear Thesis?

We have updated our mobile OS and handset manufacturer market share model and will make it available to subscribers as an online app by next week. In the meantime, let's review some of the findings - vendor by vendor. First up is Research in Motion. This was a profitable short in 2010, with the share price hitting our targets within 100 pennies. Since then, the stock has risen appreciably. Let's take a look to see if the rise was justified.

Page 5 of our Research in Motion forensic analysis (released in the summer of 2010 -  File Icon RIMM Forensic Analysis and Valuation – Professional & Institutional or File Icon RIMM Forensic Analysis and Valuation – Retail) clearly stated that while we expected RIMM's handset shipments to rise as a result of a rapidly expanding smartphone market, it will lose considerable market share. For the sake of those who do not subscribe, I will excerpt that page here:

As it turns out, it appears that we were erred slightly to the optimistic side with an 18% market share estimate for 2010. By the end of the 3rd quarter, RIM has fallen to 15.3% according to information calculated from IDC, and its decent has accelerated far faster than even we (the bears) have anticipated - a full 350 basis points for the quarter. This is 6x the decent of last quarter and 7 x the decent of the quarter before that. It is quite safe to assume that they will be materially below this point at year end (the data that we crunch is lagged by a quarter). This market share loss is most assuredly caused by the outsized growth of Android, which I will demonstrate in a minute. Below are charts generated from an updated version of the subscriber document File Icon Smartphone Market Model – Blog Download Version:

As you can see above, for the full year of 2010 RIM has trailed smartphone market penetration growth and that trail has increased each and every quarter with the rate of decent rapidly increasing.

RIM's share price has benefited from an increasing equity market as well as the announcement of new products. The Torch, although possessive of redeeming new qualities, is essentially still a generation behind Apple and 1.5 generations behind Android. See RIM Smart Phone Market Share, RIP?...

As you can see, from a relative perspective, the Torch is:

    • relatively underpowered with an anemic processor
    • relatively sparse in the RAM department
    • less resolute in its display WITH a smaller screen
    • compromised in its video capabilities
    • less endowed with i/o and radio functions
    • equipped with a small battery

Of course, one cannot adequately judge a phone from a spreadsheet. You really have to use it for some time to get a real feel for what it can do. Even so, the “Crackberry” addicts even take issue with it. If your own fan base can’t support you, you have a problem. Here is a review from the Boy Genius website. Go to the site and peruse the comments to get a feel of the Blackberry owners perspective.

The Blackberry tablet is, at this time, still vaporware. Although it does appear to have some strong technical advantages, RIM management has shown that they have yet to grasp the inner workings of the current mobile computing paradigm shift, and they are losing massive amounts of market share as they attempt to learn. I am not optimistic on their being able to right the RIM ship before either Android or iOS become a de facto standard. Again, let's reference output from the professional/institutional subscriber Smartphone Market Model:

Subscribers should look into re-entering bearish positions in this company. As long as prudent money management was employed, material profits were available from the last short position assuming it was entered at the time the original bearish BoomBustBlog research and opinion was released. Entry points can be gleaned from the post The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download and the actual professional/institutional subscriber model included therein...

The model is written in Excel 2007 and is an abbreviated version of the model that we built for RIMM in house. It has 9 tabs, all of which are listed below except for the first tab which is my contact information. Upon opening the model, you should click the “Assumptions” tab and populate the green cells with the red fonts with the assumptions of  your choice. Feel free to use data and trends from our Smart Phone Market Model to ensure you have the benefit of the clearly delineated historical and current trends. The current model will be replaced with an updated, refreshed version available online within 7 days. Click any graphic to enlarge.

RIM Model Assumptions

 

RIM Model Factors Driving Growth

After populating the assumptions tab, jump to the “Factors Driving Growth” tab and choose the player whose market share and penetration data you want to populate the valuation model for the sake of comparison. The choices are “Nokia”, “RIMM”, “Apple”, “HTC” and “Others”. This tab is annual data only.

 

RIM Model Quarterly Factors (driving growth)

On the next tab, you can do the same as the previous (this tab is quarterly growth). Each of the growth tabs has charts that are print and presentation quality. Just be sure to tell everyone where you got thesis, data and analysis from :-) .

Other tabs in the model…

RIM Model Income Statement

 

RIM Model Device Market Analysis

 

RIM Model Revenue Analysis

 

RIM Model Device Revenues

 

Valuation and Multivariate Scenario Output

Final output is RIMM’s valuation using our analytics and your assumptions as input in the assumption tab above, as well as a multivariate scenario analysis showing changes in quite a number of variables (assuming all others remain the same) and their effects on your base valuation, as well as the percentage upside/downside from the current price.

I personally see a clear leader in mobile computing becoming visible in 2012. Using options, a minimum of 2012 expiration OTM and ATM contracts can be purchase at the most optimistic break points demarcated by the model above after being populated with assumptions you feel most valid. I will have a proprietary BoomBustBlog option model available for download to paying subscribers by the end of next week, at which time we will revisit the analysis above.

Reggie Middleton on Research in Motion

  1. There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
  2. After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
  3. RIM Smart Phone Market Share, RIP?
  4. Android is gaining preference as the long-term choice of application developers
  5. RIM Smart Phone Market Share, RIP?
  6. The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download

The following are subscriber downloads and illustrations. Please click here to subscribe or to upgrade your subscription.

Last modified on Thursday, 20 January 2011 14:16

8 comments

  • Comment Link Reggie Middleton Monday, 24 January 2011 00:26 posted by Reggie Middleton

    The comparison between the OSs is made because strategically, Google is Apple's biggest threat, just as Windows was Apple's biggest threat several decades ago.

    RIMM's market share loss could prove fatal if the market matures, saturates or reverses. As it stands now, Motorola can charge a premium for its Android phones over Blackberry devices, and they have much less R&D, re: development costs.

    I agree, it may be a race to the bottom for many in the industry, but you will still be left with the Dells and the HPs of the world which will end of being big winners.

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  • Comment Link Jason M. Saturday, 22 January 2011 18:34 posted by Jason M.

    Good analysis Reggie. I agree that RIMM is in deep trouble, but comparing its growth to Android is very difficult. RIMM and AAPL are both the sole providers of hardware using their respective operating systems. Android is the os for many manufacturers. RIMM could lose market share but still maintain higher revenues and margins than the Motorolas of the world. That's the key.

    Android may cause all of the profits for the manufacturers using it to evaporate. Then we will see a repeat of what happened in the pc industry as Windows became dominant...bankruptcies and consolidation. Google is the only winner there because its the os provider. The manufacturers will only last as long as the race to the bottom. That race has started with the likes of Dell and Vizio getting involved. Only a matter time before the manufacturers look for another alternative.

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  • Comment Link Reggie Middleton Friday, 21 January 2011 08:28 posted by Reggie Middleton

    "I know this post is about RIM but i’m talking about your ongoing analysis on the smartphone market. happy to discuss this more.."

    Fair enough. When I started this ongoing analysis of the smartphone market, Android was trailing Apple, Nokia, and Blackberry. I made it very clear that they would probably take over in short order. That was the unpopular argument and position at that time. Well, was I right? Android is now growing faster than all of them, and is selling more than all of them was well - after just a few short months. If, or when, I am proven wrong, I will willingly admit it, but I have been right on the money thus far.

    Google has blown the estimates out of the water. BoomBustBlog was the only analytical source that I know of that strongly bullish on Google. Google has found a way to pierce the pressure points of the business models of several major competitors and markets, simultanesously at relatively low cost and resource consumption on their part. Their investment is that of a strategic, longer term, private equity nature which does not jive well with the quarter by quarter, show me the money now, Sell Side Wall Street analyst perspective, or the investors that follow them.

    Take the time to comprehend their strategy and you will see that there is massive untapped value in Google. Apple's strategy is more transparent - at least at the moment, and so are their earnings.

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  • Comment Link Reggie Middleton Friday, 21 January 2011 08:19 posted by Reggie Middleton

    "take music for example what is cool? is it pop manufactured by record companies or is the kids who start out in garage jamming?"

    Actually cool is often considered what was marketed by big companies and pushed through the radio and iTunes ads. As I said, a machination of corporate marketing machines. I think of cool as the garage band/crew, but by definition that can't be mass marketed. iGadgets can and are mass marketed as cool.

    "you go out to a coffee shop or bar where and see the ratio of android to iphones (as well as the PC laptop to Mac book ratio) and Apple will easily outnumber any other device."

    Yes, but if you go out to corporations, PCs reign supreme, and that is where the bulk of the money is spent, not coffee shops. Apple is definitely selling more laptops, and at a premium price, though. Its the coffee shop crowd that should scare you. They are, by far, more finicky and volatile than the corporate crowd. Fads change faster than IT dept. mandates.

    "Do consumer want the fancy sports car or do that want value? lets be honest most people will go for the sports car. But most people can’t afford the sports car so they buy the closet thing they can, which is exactly what Android is right no"

    I hear this argument often, but it doesn't make sense. The high end android phones cost the consumer no less than the brand new iPhone 4, yet they are moving like hot cakes. The reason is because there are quite a few consumers, such as myself, that can see past corporate marketing and shiny packages and peer into the actual capabilities of the device. See http://mashable.com/2011/01/16/verizon-smartphones-compared/ and tell me which device is the exotic sports car equivalent and which is the Ford. Shiny glass covers and polished aluminum aside, the iPhone is outclassed - severely - by several Android phones. My Evo, with customizations that are free, runs circles around the iPhone in nearly every category and I actually use it to show many people how capable these minicomputers cum phones can be. about 70% of them (iPhone/Blackberry owners) have switched over to Android just by watching me work on or play with my phone.

    "cool, the buzz whatever you want to call it is not created by people who seek ‘value’ it can not be measured in financial analysis (which is why the estimates on apple are always so wrong) or by marketeers, it starts with a small group of people and spreads. people want to be part of it and it spreads and spreads and that is why apple’s numbers are and will keep getting better and better (and can also explain Facebook’s growth and imho ultimate downfall/saturation point)"

    But that doesn't explain why Android is outselling Apple in both the US and abroad (where the ATT exclusivity argument doesn't hold and the iPhone is more widely distributed). As of this point, Apple is behind Android in sales and the gap is rapidly widening. We shall see what a few quarters of Verizon availability does for the iPhone, but with the loss of exclusivity on ATT comes the marketing push for the stronger Android products. ATT has always carried the weaker android products, which still managed to sell about 25% of their inventory. ATT is now getting serious, with the Motorola Atrix, which is actualy strong enough to power its own laptop and big screen (with both coming with it as accessories).

    Listen, I understand your reasons for thinking Apple products are cool and that's why people buy them at a premium. I actually happen to agree. The fact of the matter is that more people are buying Android, and many people who value flexibility and capability over flash (pun intended) will choose Android unless Apple does a serious about face in its business model, which is highly unlikely, but possible.

    "Android is for people who seek value, for tinkerers and those who will always repeal what is seen as cool. Turn the heads of the youngsters who are hanging out in bars, creating art, music and films and you will find you’re apple beater."

    Well, photographers are part of the "cool" set. I know two or three who are salivating over the flexibility of the photography options available and the photographic processing apps. Just an example of how ephemeral that "cool" thing can be, particularly when paired against raw capability. Ultimately, the "coolest" thing is to be able to do more.

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  • Comment Link John-Galt Thursday, 20 January 2011 17:06 posted by John-Galt

    Hi reggie,

    Thanks for the reply, none of those things you mentioned (muscular, good looking, money etc.) have anything to do with cool! marketeers wish they had cool as tool but we all know that is not true. take music for example what is cool? is it pop manufactured by record companies or is the kids who start out in garage jamming? Of course, what is considered cool changes frequently but here, today, you go out to a coffee shop or bar where and see the ratio of android to iphones (as well as the PC laptop to Mac book ratio) and Apple will easily outnumber any other device.

    Fair enough,you state as an intelligent consumer you chose the device that gives me the most value but the world just not work like that. Do consumer want the fancy sports car or do that want value? lets be honest most people will go for the sports car. But most people can't afford the sports car so they buy the closet thing they can, which is exactly what Android is right now.

    Apple happens to fit in with the current Zeitgeist which is for a simple, sleek modest lifestyle, Apple is certainly playing to this in there advertising but in no way did they create this! Another angle on RIM's decline is with an end of the age of extravaganz where wall street, the city, bling etc was cool. in the age of austerity the corporate world and the symbol of that world is not longer in vogue.

    cool, the buzz whatever you want to call it is not created by people who seek 'value' it can not be measured in financial analysis (which is why the estimates on apple are always so wrong) or by marketeers, it starts with a small group of people and spreads. people want to be part of it and it spreads and spreads and that is why apple's numbers are and will keep getting better and better (and can also explain Facebook's growth and imho ultimate downfall/saturation point)

    Android is for people who seek value, for tinkerers and those who will always repeal what is seen as cool. Turn the heads of the youngsters who are hanging out in bars, creating art, music and films and you will find you're apple beater.

    I know this post is about RIM but i'm talking about your ongoing analysis on the smartphone market. happy to discuss this more..

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  • Comment Link macfly Thursday, 20 January 2011 16:29 posted by macfly

    Great info, and certainly echoes what I'm seeing around me. I don't know anyonewith a 'berry anymore. What is a short position or option to take and when?

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  • Comment Link Reggie Middleton Thursday, 20 January 2011 15:46 posted by Reggie Middleton

    For the life of me I can't figure out how you get Apple bashing from a short RIMM article, but I'll humor you. Android has already surpassed Apple in both shipments and growth rates, so your thesis is dead in the water before we can get started. Cool is a marketing tool. What is tool. If I'm a tall muscular, good looking man that rides around in yachts and exotic cats with beautiful women, am I a nerd or am I cool?
    Would I brandish an iPhone or Android? The answer is that as an intelligent consumer I will brandish the device that gives me the most value. It is Apple that is pushing that "cool" thing into your head.

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  • Comment Link John-Galt Thursday, 20 January 2011 15:26 posted by John-Galt

    Reggie, the thing which is missing from this analysis and to be honest all your apple-bashing analysis is the cool factor.

    On a Scale of cool - apple>android>blackberry

    or in other words cool>nerds> suits

    Until apple stops impressing the cool kids Apple will reign supreme, Android will ALWAYS be playing catchup and RIM will continue to lose market share until its only users are in the corporate area. Why is Nokia on a downward spiral? it stopped being cool when apple released the first iphone.

    Like you in your analysis Android users go on and on about what the iphone can't do. None of that matters to iphone users, now or for as long as Apple is the coolest brand. Because at the end of day the majority of people want to be with the cool kids.

    Regardless of the insider selling, Steve Jobs health Apple will continue as the market leader and for that reason imho a strong Buy because of one word. Cool.

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