Where's the Fallout from RIM's Miss?

BlackBerry designer Research In Motion (Nasdaq: RIMM  ) is doing a fine impression of a dying swan. The stock has fallen 56% in the past three months, margins are slowly deteriorating, and growth is slowing down. Last week's first-quarter report added some 21% to the long, painful haircut by disappointing analysts and investors on several levels. All of this bad news is a result of having Apple and the Android gang steal market share from RIM on a global level, and that trend isn't likely to disappear anytime soon.

So what other stocks should we be shorting as RIM slides into obscurity? Some of the answers might surprise you.

The usual suspects
The biggest usual suspect is Marvell Technology Group (Nasdaq: MRVL  ) -- the supplier of processor chips to the majority of RIM's smartphone-class models. RIM provided 14% of Marvell's sales in 2010, making it Marvell's second-largest customer. What's more, that proportion is on the rise from less than 10% in the two previous years. A weak RIM won't kill Marvell outright, but it'll hurt for sure.

TexasInstruments (NYSE: TXN  ) and Samsung also tend to feature prominently in RIM's product teardowns and component invoices. For example, the PlayBook tablet's beating heart is a TI OMAP chip, not a Marvell Armada. But given their immense scale and broad customer bases, these giants are unlikely to suffer from what ails Research In Motion.

Likewise, memory-chip maker SanDisk (Nasdaq: SNDK  ) provides memory modules for RIM products and also sells memory cards for upgrading storage that are popular in BlackBerrys, but it's diversified enough that it really doesn't matter. No single customer accounted for more than 10% of SanDisk's sales in recent years, and RIM is never even mentioned in the latest 10-K filing.

These guys must be in trouble!
OK, so how about the third-party contractors that manufacture RIM's gadgets? Three of the big ones list RIM as a major component of sales, so this should hurt a bit. Right?

Not so fast. Unlike Marvell, which commands a nice premium for its high-end mobile system processors, mobile phone assembly is a low-margin business. The name of this game is high volume and low margins, and the finer details such as a few hundred million dollars' worth of RIM's business sort of fade into the background.

The analysts at Collins Stewart did the math for us, and this is how it breaks down.

Company

Sales Impact of Lowered RIM Guidance

EPS Impact of Lowered RIM Guidance

Celestica (NYSE: CLS  ) ($76 million) ($0.006)
Jabil Circuit (NYSE: JBL  ) ($149 million) ($0.01)
Flextronics (Nasdaq: FLEX  ) ($48 million) ($0.001)

Data courtesy of Collins Stewart for the quarter currently under way for each company.

As you can see, even materially lower RIM orders won't translate into much bottom-line pain for these diversified giants. The operating margins in play here are in the low single digits, and the revenues buffering this hit are enormous.

What do we do now?
So Marvell looks like the only supplier likely to suffer much damage from RIM's lack of traction. This sordid story of a beat-down phone designer has become a first-class example of the business benefits in having a wide customer base.

One word of warning before you gleefully load up on short sales and put options on the chipmaker, though: RIM is a large customer but hardly the only client that matters. The market has treated Marvell as the long-lost twin that was separated from RIM at birth, and the shares have moved almost in lockstep for the past year and a half. That might be a big mistake.

Perhaps the best thing to do today is simply to add Research In Motion to your Foolish watchlist. Keep a close eye of the floundering smartphone hopeful in case it starts showing signs of life again -- or a bigger batch of fundamental troubles. When that time comes, you'll be in prime position to act accordingly.

Fool contributor Anders Bylund holds no position in any company mentioned. See his holdings and a short bio. The Motley Fool owns shares of Marvell Technology Group, Texas Instruments, and Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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