Poor Research In Motion
After conference calls and press releases touting the company's commitment to innovation and bright future, CEO Thorsten Heins admitted in an interview with fan site CrackBerry that the company is in need of change. He disagreed with some investors' sentiment that the company should break up and sell off the assets, but acknowledged that the company's old path was not sustainable.
It was encouraging news to hear that the new CEO was ready to make fundamental changes. But when today's warning came out, investors lost all of their confidence. We know it will be a weak first quarter, but RIM is a long-term story. This news should not warrant today's sell-off. Let's look at what RIM is doing to dig itself out of tech hell.
When in doubt, throw 'em out!
Like many a troubled company, Research In Motion has been laying off workers. Around 2,000 people are on the chopping block over the next couple of months. RIM currently employs around 16,000 people, down from the 20,000 it employed in its heyday.
Tech companies have a tendency to become bloated when the income statements look pretty. But when the going gets tough, the tough get ... fired. Another tech behemoth, Hewlett-Packard
HP will lay off about 8% of its workforce. The RIM cuts are over 10%. It seems like a massive shedding, and it is, but RIM can better choose how it consolidates operations and becomes a more efficient machine if it's a smaller company.
The Storm is over
RIM's main problem: so-so products. The BlackBerry Storm -- RIM's attempt at an iPhone competitor -- was absolutely garbage. As a once-horrified owner of a Storm, when people asked me to "Google" something on my phone, I laughed. It would have taken less time and frustration to find one of the 10 remaining phone booths on Planet Earth, call my mother long distance, and have her look it up on a functioning device.
Now, Research In Motion is touting the BlackBerry 10 operating system and phone. The 10 is RIM's Hail Mary pass in the smartphone Superbowl.
The 10 got some good press. The new operating system is a slimmed down and refined version of RIM's tablet OS. It will be interesting to see if BB 10 can fight back against Tim Cook and his spaceship headquarters filled with the essence of success.
Backed by Canada's best
My most bullish argument, and I admit it's thin, is Prem Watsa's involvement. The CEO of Fairfax Financial (OTC: FRFHF) and Buffett-like Canadian investor owns over 5% of the company and has taken a seat on the board.
Though Watsa is not known for being an activist investor, he is known to be very risk-averse. In the last year or two of market bull-ery, Watsa was largely hedged -- a move which many of his critics called him out on. So with Watsa taking such a strong interest in the company, he must see some big opportunity. Ever the realist, he predicted the RIM turnaround story will likely take four or five years, and investors should not expect to see immediate change.
I like Watsa's honest approach to RIM: Let the reorganization take place, and buckle up in the meantime. Investors looking into this company should keep a close eye on every development to come out. With a four-plus-year investment horizon, it's easy to isolate a company and not consider general market considerations. Technology changes fast, and something could come along to put the final nail in the coffin. I don't see that happening, but never say never. RIM is not in denial about the situation, and it's taking action. The stock is trading incredibly cheap, and in my opinion, is worth at least a nibble until more information trickles in.
Maybe this one sounds like too much work. Maybe you have a life and don't have time to read every bit of RIM-related news trying to figure out what the heck is going on. Well, in that case, let me point you to our fantastic free report, "The Motley Fool's Top Stock for 2012" Our analysts have done the legwork for you, all you have to do is read it! Get your copy by clicking here.
Fool contributor Michael Lewis owns no shares of the stocks mentioned in the story above. Motley Fool newsletter services have recommended buying shares of Fairfax Financial Holdings. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days..