BlackBerry designer Research In Motion
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
Likewise, memory-chip maker SanDisk
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.
Sales Impact of Lowered RIM Guidance
EPS Impact of Lowered RIM Guidance
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.