It goes without saying that Canadian smart-device maker Research In Motion (Nasdaq: RIMM) has seen more dark patches and bright spots over the last 18 months than many companies see in a lifetime. Left for dead by most tech investors, the company's stock price fell almost 90% from its all-time high in 2008 as a series of humiliating management blunders and the entry of several massive competitors eclipsed the once-king of the smartphone market. However, after purging its upper ranks and installing newly minted CEO and President Throsten Heins in January 2012, the company has undergone a transformation that could potentially serve as a full-fledged resurgence, albeit an unlikely one.
Regardless, RIM's share price has been on an absolute tear lately, doubling over the last six months and instilling a newfound hope in many that had given this company up for dead. With the impending launch of its next-generation BlackBerry 10 mobile OS due Jan. 30, the future seems as divisive as ever. And it was in that spirit that the Fool recently compiled a premium research report on RIM to highlight its long-term outlook. Included in the text below is a brief excerpt of this report that we've included to you for free. Enjoy!
The opportunity
Investing in Research In Motion is a value play banking on a turnaround, pure and simple. RIM may be down, but it's not out yet. The company's subscriber base stands near all-time highs, and the company remains the leader in the niche segment of the market that strongly prefers hardware keyboards to capacitive touchscreen-based ones.
RIM also now generates the majority of its revenue (65% last quarter) in emerging markets outside of Canada, the U.S., and the U.K., so its lack of domestic consumer appeal paints a negatively skewed picture. That being said, international sales are still declining as well, down meaningfully last quarter.
There are numerous things that will have to all fall into place with little to no room for error in order for RIM to successfully pull off a turnaround. First and foremost, the company must deliver its next-generation operating system platform, BlackBerry 10, on time. The OS is built on the foundation of QNX Software Systems, which RIM acquired from Harman International back in April 2010.
Since then, RIM has been promising a QNX-based OS, only to be faced with continued delays and it has yet to launch a BB10 smartphone. The PlayBook OS is built on QNX technology, but RIM relies far more heavily on BlackBerry smartphone sales than tablets. BlackBerry 10 is now slated for its upcoming global launch event on Jan. 30, and it is absolutely imperative that RIM meets this production deadline, or else it risks severely testing the patience of even its most loyal users.
In order for BB10 to succeed with consumers, RIM needs developer support in order to provide engaging app content for its platform. This is a reality in today's competitive mobile landscape, where ecosystem app counts are nearly as important as device hardware specifications. Developer interest is waning, but the company continues to come up with new ways to try to incentivize them and keep them on board.
RIM has recently implemented its Cost Optimization and Resource Efficiency, or CORE, program, which is intended to cut costs and generate annual operating savings of $1 billion by the end of fiscal 2013 relative to its fiscal Q4 2012 run rate. These cost reductions will inevitably entail layoffs and head count reductions, which will include 5,000 positions this fiscal year.
This is always a dilemma for companies down on their luck, because layoffs come at a time when they most need to invest in innovation. RIM has said that its layoffs will not affect BB10, though. Last quarter, RIM took $55 million in pre-tax charges associated with the CORE program, largely related to these layoffs.
The company remains operating-cash-flow positive, generating $950 million last quarter. Its cash position increased sequentially to $2.9 billion, alleviating some investor concerns related to its cash burn rate. It has no long-term debt, meaning that RIM's cash position now comprises around 35% of its current valuation. There is also substantial value in its patent portfolio since it was an early innovator of wireless technologies, and RIM also has a large infrastructure for its network operations.
The value of those last two assets is highly debatable, though. Patent portfolios are notoriously hard to value, and the quality of RIM's underlying IP is questionable. It would also be an expensive undertaking to repurpose RIM's networking infrastructure for use with other platforms.
Shares now trade under 0.6 times sales and less than 1.2 tangible book value. Metrics like that tend to bring out the bargain hunters looking for deep value plays that think RIM can orchestrate a turnaround, looking for opportunity in a possible rebound.
