Will RIM Follow the Road Less Taken?

Let me tell you a little story. Keep your tissues handy, because it really doesn't have a happy ending.

A fallen giant in the mobile computing industry needs a miracle to survive. Winding up for one last Hail Mary, the company prepares a totally new smartphone software platform, built by respected gurus in the field and based on solid technology. In the months leading up to the final release, product photos and tantalizing details start to leak out. Fans are abuzz, rivals fidget nervously, and share prices surge.

What happens next?

There goes my hero
Research In Motion (NASDAQ: BBRY  ) fits the description above. Investors and management alike hope for a triumphant return to the smartphone market that RIM's BlackBerry line once helped create. The long-awaited BB10 platform has a lot riding on its shoulders. Will the $200 million spent on Harman International Industries' (NYSE: HAR  ) QNX division finally bear fruit and save the day? Or is it too little, too late?

Like I said, the stock is surging on pre-release enthusiasm. Another weak earnings report took the shine off the charge, but RIM shares have still gained 62% in the last three months. Isn't this proof positive that the company's fortunes have turned?

RIMM Chart

RIMM data by YCharts.

I'm afraid there's ample and recent evidence to the contrary. Remember Palm?

Where's the road less taken?
Like BB10, Palm's Pre smartphones and Linux-based WebOS software had the buzz of a thousand beehives. The company was in dire straits, but the rickety balance sheet and negative earnings would surely be saved by this dynamic duo.

So Palm Pre launched to rave reviews -- and forgettable sales. A year later, investors counted their blessings as Hewlett-Packard (NYSE: HPQ  ) bought the company for pennies on the dollar. Now, WebOS has been released as an open-source package with zero commercial value and HP jettisoned what was left of Palm's leadership.

What's different this time? Well, RIM stands a few feet further away from its personal fiscal cliff than Palm did at the end. The company has nearly $2 billion in the bank and no long-term debt, and has been known to turn the occasional profit. Cash flows still look pretty strong. Palm didn't have these advantages.

RIMM Net Income Quarterly Chart

RIMM Net Income Quarterly data by YCharts.

But RIM also finds itself in a far more mature mobile market. The Apple (NASDAQ: AAPL  ) iPhone was but two years old when the Palm Pre hit store shelves and Google's (NASDAQ: GOOGL  ) Androids had barely outgrown their diapers. Now, Apple has reported 271 million iPhones sold, not counting the as-yet untold millions of units shipped in the current holiday quarter. Even Cupertino fights an uphill battle against the Android army. Mighty Microsoft (NASDAQ: MSFT  ) , with former cell phone king Nokia (NYSE: NOK  ) tightly by its side, can hardly make a dent in the firmly established iPhone/Android duopoly.

The best man doesn't always win
What I'm trying to say is, BB10 may be the best thing since sliced cake and more beautiful than a Caribbean sunset. It doesn't really matter. The best technology doesn't always win, or else we'd still care about Palm products today.

A BlackBerry turnaround isn't completely impossible, but it's highly unlikely given the state of the mobile industry. I'd expect RIM's share to climb some more until the product actually launches. And that's likely to be the end of the good news.

In other words, I see RIM hitting a final peak in January or February of 2013. It's all downhill from there. I even have a thumbs-down CAPScall riding on that endgame. That's about the strongest bearish statement you'll see a Fool make, next to actually shorting the stock or buying put options.

2013 and beyond
There's no doubt that Apple is benefiting handsomely from the smartphone revolution started by RIM. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (6) | Recommend This Article (1)

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 26, 2012, at 7:11 PM, phyrne wrote:

    Ive got a blackberry and an iphone.im always using the blackberry its 10 times easier and always works.also the bbm things brilliant and the whatsup too.the battery on the iphone is always getting low or worse dead every day and to send a decent message forget it also people can read what your writing if they are next to you.the ipads much better poduct.everyone i know with an active life has a smashed glass on their iphones which arnt easy to repair in europe and you dont get a replacement while they do it.its a good camera and photo storage unit but then so is the blackberry.if i can transfer easily all the stuff i have on my blackberry EASILY to the new model il be getting one .

  • Report this Comment On December 26, 2012, at 7:18 PM, phyrne wrote:

    The only problem for rimm is the fact that they dont break so people dont get a new one ,but i consider thats an asset because its lasting longer than my german mega expensive dishwasher and peolpe in the developing world especially africa place great esteem on things that can be repaired and barely break down .plus its mega agrivating that you cant buy an equal ending wire to transfer iphone photos to your ipad and need a normal computer which i dont use anymore

  • Report this Comment On December 26, 2012, at 7:44 PM, Arthur1111 wrote:

    infothathelp.

    I have seen many responses from you. So, I assume you have a computer. If you have one, check:

    RIMM is up 11.4%

    Apple is down 1.3%

    Stop making silly comments on silly articles.

    Sell Apple and buy RIMM and start making some money.

  • Report this Comment On December 26, 2012, at 9:07 PM, UncommonSense65 wrote:

    Palm and RIM share a common history of making phones - end of comparison. RIM has a worldwide network - Palm didn't. RIM has security that governments trust pretty much world-wide - Palm didn't. BB outsells other smartphones in Indonesia in the neighbourhood of 10:1 on all competitors combined, and I've read 7:1 in South Africa. Read the articles about teens in Europe and their BBs. Palm had none of this reach or ecosystem. RIM is viable - maybe everywhere but the US of A.

  • Report this Comment On December 27, 2012, at 1:25 AM, sliderw wrote:

    Be bearish on RIMM, but you should consider writing LEAPS calls on it.

  • Report this Comment On December 28, 2012, at 5:27 AM, infektu wrote:

    " The best technology doesn't always win, or else we'd still care about Palm products today."

    This statement alone says a lot.

    Palm never had a good radio in their devices, what they did was contract out the design and the result was awful (crappy coverage, dropped calls, etc.)

    The software was so-so, when they finally changed over to WebOS (which you are probably refering to as "great technology") it was too late for the HW was still crappy. And WebOS was so great that it was impossible to port to an HP phone (or printer for that matter).

    Palm had none of the RIM's assets, a strong backbone network, encryption, power-efficient devices, carrier relationships, etc.

    They had no money left either, and no product to sell while "the great one" was being developed.

    RIM has been selling BB7 all along (frankly, a feat) and now they are weeks away from the launch.

    It will most likely take RIM some time to get back market share in US.

    However, if their product solves problems quicker than the existing phones, they will certainly do.

    Nobody is tied at the hip to their smartphone.

    Meanwhile, in 2G land BB7 still beats hands down both Samsung/Apple and ZTE/Huawei.

    And no-one should underestimate the power of the novelty. Apple is soo 2010 and yes, Samsung is oh, so 2012 :-)

    @InfoThatSucks

    Maybe getting a decent job will help you forget being sacked from RIM a few years back, when they hired all sorts of warm bodies.

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