Lofty Sales ProjectionsRIMM sold 11 million devices in its most recent quarter and surpassed the 100 million mark for BlackBerries shipped. The RIMM bulls find it hard to fathom that a company selling so many devices will not continue selling the same number on an ongoing basis. I have one retort to that point: Remember the RAZR by Motorola ( MOT)? RAZR, of course, was a runaway success of a phone for most of the last decade. The iconic phone, which was introduced by former CEO Ed Zander in 2004, enjoyed a great four-year run and sold 110 million units over that time. But no one uses a RAZR today. I'm not saying BlackBerries will disappear in two years, but it is clearly on the decline, as RAZR was in late 2007. With all the speculation about whether Apple will have difficulty surpassing the $250 billion market capitalization size, no one has yet asked: will BlackBerries hit a wall after they ship their 110 millionth device like RAZR did?
A Lock on EnterpriseBlackBerry bulls often talk about the security of these devices and how they are beloved by enterprise IT managers. They point out that enterprises have written apps for the BlackBerry, making the devices sticky.
Business Users Prefer the Tactile KeyboardThe BlackBerry is a very effective email device. That was its initial purpose and it will always have that draw for power-user business types. Yet, because it's done email so well, it's never learned how to do everything else (browsing and apps) well that users (consumer and business) expect in a device today. The BlackBerry's success to date has covered up this blind spot. Now, in the last four months, it's been widely noticed versus iPhone 4 and Android devices but guess what, you can't snap your fingers now in Waterloo and expect that to suddenly change.
RIMM's Cheap. RIMM is selling at 9 times this year's earnings and 8 times next year's. For most S&P 500 companies, that valuation would signal a screaming buy -- but not in the face of slowing growth. The question that is critical for RIMM, Amazon ( AMZN), Netflix ( NFLX), Apple or any high-growth company is what is the future growth rate for the next five years. If it's straight up, you get an Amazon-like multiple. If it's flat, you get a much lower one. The market is signaling that the BlackBerry will be a niche business user tool in the future. It's not cheap, if it's going to see shrinking device volumes and contracting multiples.
A New Operating SystemRIMM bulls seem to acknowledge that their operating system (OS) has been vastly inferior to iPhone and the (still buggy) Android OS. But they pin their hopes on the new OS 6 coming out later this summer. It looks better and it might breathe some temporary new life into the shares for a few days, but ultimately it won't solve the problem of a lack of applications running on BlackBerry. IPhone now has over 200,000 apps built for it; Android has 70,000 apps (and rising); BlackBerry (as of this time last year) had a whopping 2,000 apps. If you were an app developer, where will you spend time building a new app?
Exciting New Devices. On the last earnings call, RIMM co-CEO Jim Balsillie was curiously confident in talking about RIMM's future. He talked cryptically about how the new devices being worked on by RIMM's engineers were going to excite customers. He promised we'd see some later in the summer. The potential "game-changer" he's likely referring to is the Slider ( which has had photos leaked out on the Web like this one ). It's going to combine a large touch screen with the unique RIMM keyboard. This is a perfect example of how engineers think. Cram more features together in one device. It's obvious that the phone looks large and clunky. These kinds of slider devices have been tried and have failed. In my opinion, most consumers are likely to prefer the more intuitive and elegant iPhones and Android devices. If users are already complaining about the Motorola Droid's size, how are they going to like the Slider? The bottom line is that RIMM is heading quickly towards a niche device classification with a smaller price-earnings ratio as a result. No amount of Bolds, Storms, Sliders or RIMM tablet devices are going to save them, either.
|Research in Motion Stock Rating Report (RIMM) Rating and Financial Analysis|