"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 (RIMM +0.37%), 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 (GOOG +0.20%), 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 (AAPL +3.26%) and Android, but with Microsoft's (MSFT +1.62%) deep pockets funding its expansion of Windows Phone 8 and partnership with Nokia (NOK +2.90%), 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.
