It seems pretty clear to me that RIM has to either get BB10 out the door if they stand any chance at a comeback (of sorts). A successful launch of BB10 requires cash. RIM has cash ($2.2 billion), but the risk of becoming cash flow negative is VERY real now. As I wrote about on CrackBerry last night, I think they have up to another $500 million per quarter of cash flow decline that they could absorb before bleeding. And that’s only if their headcount reductions and other initiatives are executed perfectly.
So here’s my main question: Look at Microsoft. Look how they’ve continued to attack this market (unsuccessfully) for years. They’ve gotten almost nowhere, yet people still consider them a possible player with Windows 8. Why is it that RIM is dead, gone, completely toast yet Microsoft still has a chance? The only possible reason to explain this is CASH. That’s because cash = staying power.
Running out of cash is like running out of lives in a video game. It’s game over.
So to me this all comes down to cash. If RIM has enough of it, they can launch BB10 (even late) and do OK in the market. But man, oh man, is it painful to watch them stumble and fumble their way towards the finish line / graveyard (not sure which yet).
I’m going to enjoy my long weekend now. So let me know what you think. What makes RIM different than Microsoft in its quest for Smartphone dominance?
Click here to read my full write-up on CrackBerry
Hi, I'm Chris Umiastowski. I'm a 10-year veteran of sell side equity research and this is where I come to connect with friends on all things related to tech investing.
{ 13 comments… read them below or add one }
Three hard realities:
1) Cash level at 55% of market cap. Yet they’re still haven’t been any public or aggressive buyout offers.
2) Management was inventing soothing sentences on earnings call. But smooth talking is not appreciative to stock value. Even the Playbook 2 announcement didn’t soothe or get any media attention as a matter.
3) Let’s judge this at face value: It’s a company that just has to deliver “one single phone”. It goes to show that they still aren’t focused enough with the CEO approaching bankers or being manipulated by every negative sentiment. Learn from Steve Jobs, it’s about the pursuit of value.
For one, RIM has a user base of 78 million active users and are known in the smartphone space. BlackBerry is a wonderful brand throughtout the world except for the US. They need to launch BB10 with excellent marketing and they will start gaining in the US once again.
“Why is it that RIM is dead, gone, completely toast yet Microsoft still has a chance?”
Easy. They are not comparable. It’s less about the cash and much more about the eco-system and leverage points. Microsoft has a 1 billion user Windows install base, 40 million XBox Live members and 663 million Skype users. RIM does not. This is why MSFT has a chance.
I agree with Tom. Cash is important, but secondary. Also, MSFT has much to lose if they can’t make their mobile strategy work. Hence their interest in Nokia and RIM.
Saying that cash is secondary is like saying oxygen is secondary to life. It’s crazy talk.
MSFT’s 1 billion Windows users hasn’t helped one bit all these years. Why does it suddenly matter? I do see the point you’re making. I just don’t buy into it as much. Xbox I do buy into. It’s been growing all these years and mobile gaming is a big factor. Windows … not so much. Skype … a non factor right now in choosing Windows Phone over iOS or Android. Obviously RIM has a hole there
And I got some good info on why a couple weeks ago. They better fix this.
My main point is that MSFT and RIM both have a shot in the chamber so long as they have cash. MSTF has many shots. They’ve got a machine gun with nearly unlimited rounds. RIM is down to its last bullets.
The difference is both cash and marketing muscle. IBM bestowed upon MSFT the exclusive right to own and market MS-DOS in the early 80′s and this has provided them with an increasing annuity of profits for 30 years now. This has allowed them to operate like a machine gun that never runs out of ammunition in terms of deploying resources to develop (well, ‘copy’ might be a more appropriate term) new products and then to market the hell out of them. So, they can attack a competitive target pretty well as long as they want. But, that does not necessarily mean that they hit the target or get close as has been demonstrated many times over about the last 3rd of their history as the battle has moved more to the internet and now to the mobile space from the PC desktop computer. For the most part MSFT never has to think of their cash level when they do anything. RIM does (now). That means excellent execution is very important, something RIM has not shown they have been able to do for years now, not to mention RIM has had problems figuring out which path to execute.
I’m not surprised that RIM will not launch BB10 until 2013 and predicted that months ago on here (whoops I’m not supposed to toot my own horn – sorry, I slipped, my bad!). All they’ve done is slipped on ship dates ever since they originally announced the product would ship in early 2012, so why should that pattern not continue given the complexity of the task of integrating software they only purchased a scant 2 years ago? Yes they have a high a couple billion of cash but that is going to be eaten up very quickly as sales further plummet, termination costs add up and dead inventory skeletons rear their ugly heads and require further write-offs. This why why announcing a stock buy-back less than a year ago given their situation then was one of the most idiotic strategies for their cash they ever announced.
Carriers are certainly taking advantage of RIM’s precarious position by realizing that they hold the bargaining power in the relationship and demanding better terms. This will hit RIM’s already plummeting margins and sales even more. I now question whether BB10 will actually ever see the light of day as a product sold by a stand-alone company called RIM, if at all. I doubt it because I am not sure anyone will be able to stop the terminal cancer this company has and the company is going to be broken up. But if it does it will be such a pathetically ‘me almost too’ product compared to competition that all one will hear from the market is a collective big yawn. Sadly, though, I think RIM is so determined getting this product out the door that they will burn through what they have left doing so, at which time there will be a real fire sale for pieces of the company. If I were RIM I would break up the company now rather than waste $2B+ cash holding on to a dream.
I figured Prem Watsa was out of his element in trying to make a value play in the technology sector and am afraid it might be true.
I wrote this in reply to another post in facebook.
“This is what shocks me about RIM.For a 20 billion dollar in sales company, did RIM do any kind of technical feasibility study before adopting QNX.Because since the day I have been following this company I assumed that RIM obviously knows what its doing and QNX integration shouldn’t take more than 12-18 months max.Nokia put out windows 7 phone in less than 12 months and those are doing well, considering how far behind windows phone was/ still is. The fact that they are taking 36 months for QNX phone clearly shows no technical feasibility study ever was done.That’s just beyond inexplicable.It’s dumbfounding!!!RIM had a choice to adopt WEBOS, even Windows phone 7.It boggles my mind how they could be so stupid?? I think Prem watsa, one of the savviest investors of our times, would say the same thing since he lost almost half a billion on this company now.”
Mistake RIM has done is infantile, even a child is smarter than this.How can you hinge your entire fate of company on an OS without doing a modicum of feasibility study?? Unfortunately unless u were an insider it would be difficult to know that RIM was acting infantile, a lesson i will keep in mind for my future trades.
Lazaridis built the company and he eventually destroyed it because of his fat ego.
“Nokia put out windows 7 phone in less than 12 months and those are doing well”
you obviously know nothing of which you speak.
Microsoft put out win phone 7 NOT Nokia they just made the phones and sales haven’t been good at all.
http://www.pcworld.com/article/259489/sales_of_windows_phone_7_lag_creating_problem_for_nokia_and_microsoft.html
http://news.cnet.com/8301-1035_3-57458692-94/nokia-sales-estimates-slashed-after-news-of-windows-phone-8/
the time taken to develop a new mobile platform and eco system is on par with what time it has taken rim altho i agree they should have given them self more time instead of guesstimates.
Good note Chris.
I think the product delays are likely to be more caused by the big strategic review than any technical or customer experience challenges. These business change programmes are disruptive by their nature and can make the company very internally focused too for obvious reasons.
The big decisions now are about the best way to create shareholder value and no doubt BB10 will be a part of that mix…….but it may not be the dominant question for RIM anymore.
I hope they don’t lose sight of some of their strengths that have created a lot of value but equally they need to make some hard choices on what to stop doing and where their markets are changing.
Better focus and execution often comes from doing less.
Hi Chris,
Love your articles. Very informative and true to whats exactly happening. BTW, Ignore those guys who are trying to teach you balance sheets and P&L accounts…LOL. Refering to your tweet today
I have one request for you. I did post it on CB not sure if you read it so posting here again.
Can you by any chance write an article on the smartphone industry its growth rates and what it would mean for RIM. The market has just started growing, specially in EMEA and other developing countries. This should help companies like RIM to buy time to get their product out fully baked. Why am i asking you this? Coz i see lot of people/media who rant about RIM missing holiday buyers or people who’s contracts are abt to finish and they will all jump ship and RIM has lost most of the market already. But the truth is the smartphone market is not a zero sum game. its just started to grow (Im talking world wide not just US). and there is always room for 4-5 players. what if RIM maintains their 6% (correct me if im wrong) Mkts share world wide but in a bigger market, what if they improve to say 10% with BB10 in a “bigger market”, what if they loose share to say 4% but still in a bigger market and how these scenarios will affect the balance sheet of RIM.
I personally feel that RIM has not lost any of the opportunities/customers yet and they will loose big if they rush out a product which is not fully baked. Most people tend to miss this point. they think its a zero sum game. why does RIMs customers need to be IOS or droid or WP customers. They can be freshers migrating from feature phones. and this is the future of smartphone mkt. and from smartphones to mobile computing. and this is where RIM headed.
thanks for reading my long post. Hope you will have the time and interest to do such an article
cheers,
You can reply to me @
email: (removed so he doesn’t get spammed!)
twitter: @cvkedarnath
CB: veeru789
Your comments make sense. I’m deeply familiar with the concept of no contracts and no subsidies in emerging markets. It’s something Apple can’t really (doesn’t really) compete with right now. Android does. I hope RIM doesn’t drop the ball on the low cost markets when they push like crazy to get BB10 out the door.
Frankly, I dont see RIM droping the ball in low cost handsets. As an example, If you look at RIM India and how it operates, they are not bothered about developement of BB10. All they have to do is sell the current portfolio of products. and undoubtedly, the low cost models are the highest selling ones. This applies to Indonesia and other EMEA mkts.
One also needs to take into account the monthly revenue that RIM will generate by selling these phones. Might not be much (5 Dollars for IM, Social network and email data plan) but is still important revenue coming every month and when volumes grow it becomes sizable. Which other handset maker can do this.