Jim Balsillie and Mike Lazaridis, the co-CEOs of embattled Research In Motion Limited (RIM; NASDAQ/RIMM) probably had massive headaches last week after watching their stock plummet over 10% on Friday to levels not witnessed since the first week of January 2004.
While a large part of the blame is solely on market leader Apple Inc. (NASDAQ/AAPL), RIM’s poor operational execution and mismanagement is a major factor for the current malaise for the maker of the “BlackBerry” smartphone.
The numbers tell the story. In the third quarter, revenues fell six percent year-over-year to $5.2 billion, albeit they gained 24% sequentially versus the second quarter. The company shipped about 14.1 million BlackBerry smartphones and a mere 150,000 “BlackBerry PlayBook” tablets, which have proved to be a massive disappointment. Comparatively, Apple sold a whopping 11.12 million “iPads” in its fiscal fourth quarter. And, worst of all, RIM estimates that shipments of its core BlackBerry smartphone will decline to between 11 million and 12 million units for the fourth quarter. These are poor metrics for RIM.
Just when you thought that things could not get worse, RIM announced last week that it would have to delay the launch of its new line of “BlackBerry 10” smartphones until late 2012. I’m not talking of a minor incident here, but a major gaff for a company trying to convince consumers and investors that it has a bright future and that they should trust the company. Failing to deliver a new product by a few days or weeks is acceptable, but it’s not when it’s months.
The reality is that BlackBerry no longer has that glamour it once entailed. The product is seen as archaic and old. Consumers are dumping their BlackBerry and buying the “iPhone” (I’m one of those and I’m very happy with my decision) and “Android” phones. Apple has millions waiting anxiously for new products and in line-ups for days to buy. RIM draws little excitement and barely any coverage for new products, and that’s when they are delivered on time. Even in RIM’s home base of Canada, Apple is king.
If someone would ask me, “What are the best stocks?” Apple would definitely be up there.
Apple is the “best of breed.” Just look at the iPad and iPhone sales. For 2012, estimates call for the sale of 62.5 million iPads. The PlayBook may be dead, with heavy company-sponsored discounting at the retailers, something that would not happen at Apple. I expect margins to continue to be squeezed at RIM.
In my view, RIM needs fresh ideas and a change of ownership or it could face possible extinction. For RIM, revenues are estimated to fall 2.7% in fiscal 2012, followed by a 1.6% drop in fiscal 2013. These metrics are horrible. Apple’s revenue growth for the next two years is 28.9% and 15.0%, respectively.
And, unless RIM can make its products more desirable, it may endure a slow death.
For the time being, I would long Apple and avoid RIM. RIM is tempting as a short candidate, but given its arsenal of patents, the company could be a takeover target.
Another large-cap technology stock that has been dead money for years and that may be ripe for some strong upside in the years ahead if its strategy plays out is Microsoft Corporation (NASDAQ/MSFT), which you can read about in Microsoft May Be Set for Prime Time