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Research In Motion's Last Gasp

"Do not go gentle into that good night,
Old age should burn and rave at close of day;
Rage, rage against the dying of light."
-- "Do not go gentle into that good night," Dylan Thomas

If you guessed that Research In Motion (NASDAQ: BBRY  ) , maker of BlackBerry phones, could have returned 80% over the past few months, then congratulations: you were able to guess a rally that is built on nothing stronger than the unstable pile of BlackBerrys growing at your local dump. Take your profits now, because this is RIM's last gasp before it goes gentle into that good night.

Upgrades at their end know dark is right
Several analyst upgrades have helped boost the stock recently. A Jefferies analyst thinks the stock could go to $43 from its current price of around $11.70. National Bank gives it price target of $15. CIBC World Markets thinks it might rise to $17. Goldman Sachs puts the number at $16 per share. Why all the glass half-full talk? RIM is finally releasing its new BlackBerry 10 operating system in two months.

But even Goldman Sachs puts the success of the new operating system at just 30%. And based on the delayed release, the management of the software may not be the most efficient. For a company that's been building consumer devices since 1999, RIM's statement that the integration of the "large volume of code into the platform has proven to be more time consuming than anticipated" doesn't inspire confidence.

Goldman notes that filling channel inventory, which counts phones in stores, warehouses, and in transit, could help boost RIM's early 2013 performance. This short-term view might buoy those looking for a quick return, but any long-term investors should take no stock in the theory -- or company.

Profits there on the sad height
As Horace Dediu of Asymco notes, "[A]ny company in the mobile phone market that ended up losing money has never recovered its standing in terms of share or profit." Once a company's operating margins go negative, customers lose trust in the company, carriers lose trust in the devices, and developers lose trust in the platform. This cycle led Motorola to spin off its mobile business to Google  (NASDAQ: GOOGL  ) , which is still in the process of restructuring the acquisition through cutting 20% of the employees

RIM definitely lost money, as well as consumer and developer confidence. Many say that carriers want a third ecosystem outside of Apple  (NASDAQ: AAPL  ) and Android, but with Microsoft's (NASDAQ: MSFT  ) deep pockets funding its expansion of Windows Phone 8 and partnership with Nokia  (NYSE: NOK  ) , there might be very little room left for RIM. As one of the latest market share reports shows, RIM had only 1.6% of sales in the 12 weeks ending late October, compared to 8.5% one year prior. Meanwhile, iOS sales took 48% of sales compared to 22% one year prior.

RIM is trying to woo developers with an earnings guarantee, as well as with a little song and dance. If developers' apps are certified, and earn at least $1,000 over 12 months, the developers will be guaranteed $10,000. Drawing developers into an ecosystem is tough, though, even with rock ballads. RIM will also have to fight with Microsoft to build a developer base, and the long-term chances of RIM might scare many into the hands of Windows Phone 8.

Don't learn, too late, and grieve on RIM's way
As the Financial Times writes: "One needs only look back as far as August 2011, when the launch of RIM's last generation of phones drove the stock from $22 to $32. It was downhill from there." The jump in RIM's share price is backed by nothing but hope. And the only hope left for RIM is a new operating system that has a small chance of succeeding (even according to a bullish Goldman).

I'm making a thumbs-down CAPScall on RIM. Too many negatively trending phone makers have perished in the unforgiving mobile market to believe in a turnaround for a company with no backing from a tech giant.

What about Microsoft's smartphone chances? It's in the same tough spot as RIM: trying to tear away users from Google and Apple's respective operating systems. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Read/Post Comments (7) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 03, 2012, at 5:19 PM, CZZZZZZ wrote:

    re:One needs only look back as far as August 2011, when the launch of RIM's last generation of phones drove the stock from $22 to $32

    This comment reflects the sheer ignorance of many financial analyst. RIM has completely re-invented itself, its essentially a new company starting out with 80 million subscribers and the most modern smartphone OS. Calling this a 'last gasp' is sad and pathetic.

  • Report this Comment On December 03, 2012, at 9:23 PM, digitally404 wrote:

    InfoThatHelps - Please stop making ignorant comments... And stop shorting RIMM, you're in for a disaster.

    The analysis in this article feels like something from a highschool business class... Lacking depth and full of cheap assertions.

    1.6% of sales (SALES, not market share) makes sense. The BB7 phones are old and becoming dated. People are anticipating the next generation OS (which isn't programmed overnight Mr. Newman... BB10 is not simply an upgrade such as from iOS5 to iOS6... it's a completely new OS essentially started from scratch).

    Your note from Horace Dediu is valid, but I don't believe can be applied here. RIM is not trying to become #1 again. They have found a niche market and will be able to be profitable in it.

    People need to stop thinking that RIM is coming back to overtake AAPL and Android. All these phones are targeting different markets. Androids are cheap, malware plaguing phones targeted at the generic consumer. Jack of all trades, master of none. Apple is after the affluent market interested in apps. RIM is targeting the intelligent, professional, and practical subset of the population that relies on communication, and top-notch communication.

    They will do very well in the target market. These are people that realize that having any more than even 10,000 apps is a bit too much and excessive for the average person.

    RIM is going for #3 and they will take it. Their new OS is brutally efficient, highly stable, and very attractive. Blackberry is still a household name.

    Bashing RIM is just bad taste. As consumers, we all win with the extra choice. Who wants to live in a world with only two choices?

    I will be buying the BB10 on release. I'll be happy to know I will be holding the most advanced smartphone ever developed.

  • Report this Comment On December 03, 2012, at 10:20 PM, RandomMeaning wrote:

    RIM has been gradually rising for one reason: they're being rewarded for not shooting themselves in the foot by announcing further delays. The market is optimistic that they might be able to actually ship on time. Unfortunately, this sounds an awful lot like the build up of WebOS. A few very vocal supporters followed by even fewer actual buyers.

    And please, stop pretending 80 million subscribers is impressive. Those are almost entirely low end phones with minimal function so that the owner can send messages cheap. Big whoop. It's low margin stuff that isn't even breaking even on a corporate level, let alone growing. Meanwhile, their marketshare has dropped below 5% world wide, 2% in the US. They're fighting at Nokia's level now. Except Nokia has a billion dollar sugar daddy in Microsoft. Then again, Microsoft keeps stabbing them in the back so RIM may have a fighting chance against Nokia.

  • Report this Comment On December 04, 2012, at 7:47 AM, CZZZZZZ wrote:

    re: The pitifully few who dream that Rim would find a niche to survive is more ignorant

    I guess you are implying there's only room for 3 smartphone vendors to supply 3 billion people?

    Or are you implying its impossible to start from 0% market share? RIM, Apple and Android all did successfully...strange argument.

  • Report this Comment On December 04, 2012, at 9:54 AM, Forcit wrote:

    Just talked to my 23 yr old step son who switched from my used Blackberry to a new HTC. Says he really wants to go back to BB.

    Talked to a business colleague whose engineering company with 5000 plus employees were approached by Apple to switch from BB to Apple at $50 per phone - the switch happened..... Hates the Apple - has to charge sometimes twice a day and drops calls steady.

    BB will see a huge return of past users baited by Apple, Android et al to switch to their kid friendly phones.

    Stay tuned.

  • Report this Comment On December 04, 2012, at 7:13 PM, infektu wrote:

    Dan, I'm sorry, but you're missing many points...

    Re: inventory, sell-through has steadily been superior to shipments over the last 3 quarters. Last numbers: 10.x M units vs 7.6M shipped.

    Now how many units do you think BB10 will ship in its first quarter? Pretty f&€¥$ng sure it ain't gonna be 10M (but hey, everyone is entitled to an opinion ...)

    But that's ok, you can base your investment bets on that. I won't.

  • Report this Comment On December 04, 2012, at 11:35 PM, digitally404 wrote:

    @InfoThatHelps - I don't even understand your argument any more. What are you saying ? What are your concrete, rational reasons for shorting RIMM?

    With $2 Billion in cash, $4/share is cash, where is your $2/share estimate coming from? How on earth can you possibly be calculating that?

    RIM is going to be 3rd player on the smartphone market. Consumers will be happy to have a 3rd option, and I'm sure BB10 will gain traction.

    From the videos I've seen and everything I've read about BB10, it's going to be the most powerful smartphone OS to hit the market.

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