RIMM report feedback
Hey everyone, I was wondering if I could get you guys to critique a report on RIMM I recently put together:
http://www.scribd.com/doc/119507200/Rim-Report-Dec-172012
This is not an equity research report per se, and is thus extremely light on valuation and fundamental projections.
What I tried to do is provide a general company overview and some novel insight into short term stock price drivers at the request of an acquaintance. It was published just before their latest earnings release.
I would really appreciate any criticism and advice you guys could provide in terms of structure, content, writing style etc.. This is my first attempt at something like this and I'm sure there are plenty of holes.
Thanks a bunch!
Well thought out and reasoned analysis. The tone does not come off as opinionated, and it doesn't seem rehashed after reading tons of other analysis that is both of these. You brought up solid issues like their problem of losing grip in emerging markets and the developer negative loop. Not everyone catches all that. I'm one of those crazy people that got long RIM for a turnaround or acquisition play.
One thing that caught my eye: They operate their own wireless networks? I was unaware of this. I was under the impression that RIM ran their enterprise (BES) and consumer (BIS) servers and pushed E-mail and BBM through normal carrier channels, albeit in an encrypted format. Which is why when there were riots in London, RIM couldn't read the BBMs people were sending, only turn the service off. I didn't know they utilized their own wireless networks, and I'd be interested in seeing where you learned this.
One thing I disagree with: I read the grievance letters about management, not just the co-CEOs, but middle managers, fostering a terrible culture at RIM similar to what some say about IBM. Since, tons of people have been fired and laid off. I am hoping it was the dead weight and people that contributed to a bad culture that got the axe. In any case, the co-CEOs are out, and I do think that Heins deserves a little bit of credit for management of the cash position through restructuring and cost cutting. So I disagree that management shouldn't be given the benefit of the doubt based on the past, because many of those people that contributed to bad execution are likely gone. The ones that are still there are painfully aware that their jobs are on the line if the execution isn't excellent. The employees that wanted to jump off the sinking ship have likely already done so if they weren't laid off or fired already. Only the older employees that are 50+ who would leave but don't want to move or start a new career are likely still there.
From how it appears, Heins seems to have been doing a great job directing the app/developer side of the business to ensure there are plenty of good apps when the phone launches. If the apps are good, it won't matter that they have "100,000 apps versus a million" on other platforms, because who's going to use all those apps anyway, right? To contrast, the OS7 phones released with hardly any apps, and many developers stopped developing after OS6. It never really gained acceptance, and RIM didn't even seem to be trying. At least they're making the right moves this time. Even business users want a few apps on their phone, assuming it's allowed.
Another explanation for the optimism on the stock is the competitors. The fundamentals, by the way, are better than I expected to be quite honest, (I'm ignoring the obvious trader/HF driven moves coordinated with tons of negative press). On competitors, Steve Jobs is dead, and all Apple seems to be doing in the aftermath is trying to penetrate the emerging markets with cheaper products. While this could be dangerous for RIM, they might not be the innovative force they once were without Steve at the helm. Android based phones do not have much continuity on hardware, and I know tons of people who are happy with their androids, but also many others who have had hardware problems and tons of software based problems with their phones and have little to no loyalty to the platform. So my personal view is the market has plenty of room for segmentation among brands and considering the low switching costs to consumers, they can switch over and go back to BB if it's a hit. Businesses can likely more easily work with BBs than other phones, as well. The reputation for security is also still intact, which especially helps on the enterprise side.
Overall, good analysis, and you come to a reasonable conclusion given the facts. Thing is, how can you make money off a stock that's already so close to liquidation value (Cash + PP&E sales + patent sales - severance and contract exiting costs to name a few) with a bearish view? It's easy enough to say there's better places to put money, I'll give you that though.
Just some rambling. I liked your structure and writing style. It was easy to follow, but maybe some of the ER guys can offer better insight for you.
Thanks for the input, TDSWIM.
You're right about the networks, and the term 'wireless network infrastructure' is definitely confusing and I should revise that. Their infrastructure basically allows them to add value by bypassing parts of carrier networking by offloading services to their own infrastructure. But they still use the cellular networks of providers, and are subject to outages resulting from that, i.e. the recent Vodafone outage.
I totally agree the Heins is kicking butt operations wise, but I don't think thats what the speculative buyers are focused on, and it will not stop them from unloading their positions (like the drop after latest earnings, in the face of better than expected OP results). When you see people like Eric Jackson tout RIM's patent portfolio, 80MM customers etc, it kind of misses the point for me as all that was in place when the stock was $7- and I haven't been convinced it will not fall to those levels again if BB10 isn't a success.
So generally I think bulls are filling the room with alot of hot air when the true buying motivation is hopes for BB10, and I believe that the probability of success is alot less than implied by the price action and explicit commentary by some analysts.
That being said, even though I'm sticking to my guns and calling RIM a sell here, you may be right in terms of AAPL/Android leaving the door open in some ways, and BB10 appealing to more than just over-caffeinated business people. We'll know by the middle of this year.
I appreciate the feedback!
http://www.infotechguyz.com/BlackBerryServer/BlackBerryInfrastructure.h… this?
Yes!
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