My View on RIM Following Capital Markets Day

I wrote this yesterday but wasn’t able to publish it until just now. It was written before the Mike Lazaridis Keynote that I wrote about in this post.

At RIM’s capital markets day in Orlando yesterday, Jim Balsillie walked into a room full of non-believers. Barring the surprise release of new software or devices, I don’t think anything he said is going to be fully appreciated by Wall Street until after the stock recovers.

Everything Balsillie said reflects a long term view of growing the company and maintaining a position of high relevance in the mobile platform wars. Most of the bearish calls on the stock revolve around a claim that RIM is no longer relevant. And that is a reasonable worry. Ironically, most analysts who threw in the towel last week (by downgrading) are making reactive calls to short term product roadmap delays and a disappointment in management’s story telling capabilities. These problems are not directly related to the longer term roadmap.

There’s a well known concept called the rule of commitment and consistency, as beautifully written about by Dr. Robert Cialdini’ in his famous book, Influence: The Psychology of Persuasion. When somebody takes a strong public stance on a issue, they become mentally glued to that stance even when evidence to the contrary is overwhelming. Instead they face an internal force to act and speak in a way consistent with prior statements.

Analysts experience this internal force quite strongly because of the global size of the audience reading their predictions. Being aware of this force certainly helps, and good analysts work very hard to ask themselves every day, “If I started from scratch on this story, would I still make the same recommendation?”

This brings me back to my point about yesterday’s Capital Markets Day. No matter how well RIM presented their argument, most analysts who threw in the towel last week are likely to dismiss any of the positive, long-term oriented information revealed by management.

Instead, I think we’re going to see RIM continue to chug along with its long term plan of transitioning to the QNX operating system, while rolling out substantially better hardware (such as yesterday’s announcement of the Bold 9900) and improve their software offerings to consumers and developers.

Of course there’s still the big question: How well will RIM execute on building these tools for their long term future? It’s unclear. That’s a big part of the reason I’m spending Tuesday and Wednesday hanging around with people who are smarter than I am here at BlackBerry World.

Despite the opportunities facing RIM, I think Wall Street will overwhelmingly focus on how RIM failed to present anything new and exciting. And that’s true, but Capital Markets Day has rarely been about big news. It has, however, always been about gaining deeper insight into the story, and the strategy, from management interaction.

RIM went out on a limb to provide full year guidance for EPS of $7.50 this year. Yet Q1 is expected to contribute only $1.30 to $1.37. Consensus estimates show that expectations are about a dime higher for Q2. That leaves a tremendous earnings ramp required in the back half of the year. Until this ramp looks more realistic to the Street, the stock isn’t going anywhere.

Ironically, even if RIM does show a tremendous earnings ramp later in the year, it still doesn’t mean they’ll effectively make the transition to QNX. Most of the growth would be on the back of the BlackBerry 7 OS, which shares many of the same limitations that analysts claim to be concerned with (aging Java OS, proprietary Java SDK, few exciting apps).

My prediction is that RIM stock will be significantly higher by next year’s BlackBerry World conference. But don’t expect Wall Street to share my view anytime soon.

Tagged as: balsillie, blackberry, capital markets day, lazaridis