Reggie Middleton is an entrepreneurial investor who guides a small team of independent analysts, engineers & developers to usher in the era of peer-to-peer capital markets.
1-212-300-5600
reggie@veritaseum.com
I believe I was one of the earliest bears on Research in Motion, and the thesis still bears fruit - although a tad more bittersweet than the average Blackberry. On Monday, 25 July 2011 I wrote As Forecast Last Year and Clearly Demonstrated This Year, Research in Motion's Problems Are Far From Over, with the RIM bear position throwing off plenty of alpha. Today Bloomberg reports RIM Drops as Investors Disappointed With Earnings Report for Third Quarter:
Research In Motion Ltd. (RIMM), struggling to compete against Apple Inc. (AAPL)’s iPhone and iPad, plunged in extended trading yesterday after its earnings report disappointed investors for the third consecutive quarter.
Interestingly the first statement in this article is patently false. Not only does the data disprove it, but the articles own assertions disprove it as well. It goes further proving that the pop media appears to have a near permanent "market Apple by all means" mentality.
Apple has gained about 4 percentage points of market share while Android has literally (and I do mean literally) taken the mobile platform over by both taking pole position as market leader and crushing margins - while simultaneously besting all competitors in growth, combined. What do you think this does to RIM's margins? Reference Google's Android Now Leads In Market Share, Growth Rate and Potential Buyer Preference. Adding to that Apple's dominance in tablets and RIM's failings in the same, and well... Back to the article....
“Credibility sinks further,” said Mike Abramsky, an analyst with RBC Capital Markets in Toronto, who rates RIM “sector perform.”
Profit, excluding some costs, fell to 80 cents a share, RIM said yesterday in a statement. Analysts predicted 88 cents, according to a Bloomberg survey. Revenue fell to $4.17 billion in the three months through Aug. 27, compared with the average estimate of $4.47 billion.
The company’s PlayBook is struggling to gain ground against the iPad, with the Apple Inc. device outshipping the RIM tablet 46 to 1 in the latest quarter. A range of new BlackBerrys with more advanced touch-screen features, RIM’s first new models in a year, have to lure customers away from Apple’s iPhone and others running Google Inc. (GOOG)’s Android software.
“It’s about growing the footprint and that’s where I think they’ve got problems,” said Mark McKechnie, a ThinkEquity LLC analyst in San Francisco who has a “hold” rating on RIM. The new versions of the BlackBerry Bold and Torch “are not really gathering new users,” he said.
RIM, based in Waterloo, Ontario, fell as much as $5.75, or 19 percent, to $23.79 in extended trading after closing yesterday at $29.54 on the Nasdaq Stock Market. The stock dropped 49 percent this year at yesterday’s close of regular trading.
Disappointing Shipments
The company shipped about 200,000 PlayBooks, compared with the average estimate of 490,000 units. Analysts have cut estimates for full-year PlayBook sales to an average of 2.2 million. In its last quarter Apple shipped 9.25 million iPads.
RIM shipped 10.6 million BlackBerrys last quarter. Analysts predicted 11.9 million, according to the average of 10 estimates compiled by Bloomberg.
Co-Chief Executive Officer Jim Balsillie attributed the sluggish shipments to lower-than-expected demand for older devices that have struggled to compete with the iPhone and Android devices such as the Samsung Galaxy. He also said on a conference call yesterday that RIM’s latest handsets, which run on a new BlackBerry 7 operating system, are “having an excellent reception.”
Co-CEO Mike Lazaridis said RIM will issue a software upgrade for the PlayBook next month that will include dedicated e-mail, contacts and calendar programs, as well as software to allow the PlayBook to run Android applications. RIM drew criticism for introducing the PlayBook in April without e-mail and a shortage of apps like Netflix Inc. (NFLX) movies.
Lazaridis also said prototypes of phones built on a new QNX operating system that already underpins the PlayBook will be available “in the not-too-distant future” and that he will give more details at a conference in San Francisco next month.
“RIM is still going to have a challenging next few months until the QNX products are out and the Android app products are available,” said Alkesh Shah, an analyst at Evercore Partners. “The transition probably doesn’t finish until sometime mid to late 2012.”
RIM forecast third-quarter revenue of $5.3 billion to $5.6 billion and shipments of between 13.5 million and 14.5 million BlackBerrys. Earnings excluding charges related to job cuts will be in the range of $1.20 to $1.40.
Analysts estimated sales of $5.3 billion, 13.8 million units shipped and earnings per share of $1.38.
RIM also said that earnings for the year, excluding some costs, would be at the low end of its previous forecast of $5.25 to $6 a share.
...RIM’s share of the global smartphone market dropped to 12 percent in the second quarter from 19 percent a year earlier, according to Gartner Inc. In the same period, Apple climbed to 18 percent from 14 percent, and Google’s Android, used in phones from Samsung Electronics Co. and Motorola Mobility Holdings Inc., rose to 43 percent. Net income fell 59 percent to $329 million, or 63 cents a share, from $797 million, or $1.46, a year earlier.
Zerohedge, never failing to add some humor to the situation adds...
Like any good sequel, RIMM's earnings tonight did not disappoint (those looking for a disaster flick). Expectations were high (low), but we all suspected that it might not quite live up to the pre-quel, same actors and three months later. Well the reviews are in and RIMMberrr II is a winner (major loser) -18.5% (beating - to the downside - the measly -14.5% initial reaction in the prior release).
EPIC headlines include:
*RESEARCH IN MOTION 2Q OPER EPS 80C, EST. 88C :RIM CN
*RESEARCH IN MOTION SEES YR ADJ. EPS TOWARD LOW END OF VIEW
*RESEARCH IN MOTION 2Q REV. $4.17B, EST. $4.47B :RIM CN
*RESEARCH IN MOTION 2Q GROSS MARGIN 38.7% :RIM CN
*RESEARCH IN MOTION 2Q PLAYBOOK TABLET SHIPMENTS 200,000
and the real winners are (drum roll please)...though we note some have been lightening up:
Chart: Bloomberg
Hmmm... Do you mean to tell me that no one in that table above subscribes to the BoomBust?
Let's try this again: As Forecast Last Year and Clearly Demonstrated This Year, Research in Motion's Problems Are Far From Over
Research in Motion has been one of the most successful tech shorts of this blog's history (thus far). We first recommended a short last year and reiterated it in the fist quarter of this year. Reference:
This is a snapshot of RIMM as of the writing of this article...
image002
As you can see, the results have been spectacular, particular if well timed puts have been put to use. In January I posted:
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.
A 50% drop in price later... On that note, Bloomberg reports: RIM to Cut 2,000 Jobs as BlackBerry Loses Share to IPhone
Research In Motion Ltd., maker of the BlackBerry smartphone, plans to cut 2,000 jobs, or about a tenth of its workforce, as sales slow amid market share losses to Apple Inc.’s iPhone.
The reductions, across all functions, are part of a plan to “focus on areas that offer the highest growth opportunities,” RIM said today in a statement. The job cuts will leave the Waterloo, Ontario-based company with about 17,000 employees.
RIM predicted last month that sales this quarter may drop for the first time in nine years. The company is losing market share in the U.S. to the iPhone and handsets running Google Inc.’s Android software, in part because it hasn’t introduced a major new BlackBerry model since August. Cheaper Google phones are also making inroads in Latin America, Asia and Europe, threatening the popularity of less expensive BlackBerry models like the Curve.
... RIM fell 85 cents, or 3.1 percent, to $27.06 at 10:26 a.m. New York time in Nasdaq Stock Market trading. The stock had dropped 52 percent this year before today.
Notice, the same error being made in granting the cause of RIM's problems to Apple instead of its empirical cause....
The headline grossly mischaracterizes RIM's problems. Google's Android has, by far, inflicted much more damage to RIM than Apple ever has. This was easily seen over 13 months ago, at least by BoomBust Bloggers, referencing BoomBustBlog Research Performs a RIM Job!...
Page 5 of our Research in Motion forensic analysis (released in the summer of 2010 - 
RIMM Forensic Analysis and Valuation – Professional & Institutional or 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....
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 
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?…
Research in Motion is following the EXACT path we at BoomBustBlog had laid out for it since the 3rd quarter of 2010.More on Research in Motion from the BoomBust!
- BoomBustBlog Research Performs a RIM Job!
- BoomBustBlog's Fundamental/Forensic Analysis of Research in Motion Has Returned 2x-3x Original Investment This Year!
- Google’s Excellent Execution On The Android Platform Goads S.E. Asian Manufacturers Into Low Margin Innovation War!
- Blackberries Getting Blacked Out, Imitate Amateur Base Jumpers Sans Parachute!
