Will a Crucial New Product Make This Tech Stock Worth Buying?
Ramesh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The battle among mobile phone manufacturers is heating up. Research In Motion (NASDAQ: BBRY) is planning a global launch of its much-anticipated BlackBerry 10 on Jan. 30. Given the great expectations for the launch event and the hype surrounding it, is it realistic to expect a major turnaround from RIM?
RIM’s Outlook for the Future
RIM’s third-quarter fiscal 2013 results showed $950 million in cash flow, as well as an increase in cash reserves to $2.9 billion. Adjusted net loss was $114 million. After reviewing the past few earnings releases, it is clear that this company is past its prime. The stock has been relatively flat year over year, but rebounded back to about $15 from a low of about $7 in Aug 2012.
RIM provides a near-future outlook that is not expected to be any rosier than the third quarter. It expects to make a loss for the fourth quarter due to increased marketing expenditures for the launch of BlackBerry 10. Additionally, the company expects that customers will hold off on purchases of older BlackBerries in anticipation of the launch. Planned initiatives such as more attractive pricing on existing products is expected to offset some of these effects.
However, the question is whether BlackBerry 10 will have a significant enough impact to regain some market share and re-energize the existing customer base. In preparation for its launch, RIM says that over 150 carriers across the world have been performing acceptance testing. Additionally, over 120 enterprises are testing the BlackBerry Enterprise Service 10.
What are the obstacles to a successful BlackBerry 10 debut?
The smartphone landscape has dramatically repositioned new players, giving consumers new choices. First, Nokia (NYSE: NOK) is making major inroads with its Lumia 800 & 900 lineup, which utilizes Windows technology from Microsoft (NASDAQ: MSFT). Samsung is selling its Galaxy series of phones faster than analysts have expected. The Korean tech giant has in fact provided fourth-quarter guidance that builds on successful previous quarters.
The Android operating system provided for free by Google (NASDAQ: GOOG) has had an outsized effect. While Samsung, HTC, LG, and others offer Android-based lineups, they all offer Windows-based phones as well. There is flexibility in the business models of such companies that allows them to reposition their products based on the hottest-selling trends in the marketplace.
RIM is placing its bets on a proprietary operating system, much like the major player in the mobile phone market: Apple (NASDAQ: AAPL). Apple uses iOS, which so far has been well-received in the marketplace.
Major shifts in consumer preferences will require similar efforts by these manufacturers, a necessity that can be avoided by their competitors. Therefore, mobile phone makers who do not rely on a single operating system lineup have a distinct advantage. Nokia discovered that, and the Finnish phone maker is doing better because it embraced that paradigm shift. Nokia used to base all its products on its own proprietary operating system, called Symbian. Not anymore.
Prospects for RIM
The BlackBerry 10 appears positioned to be well-received. It will appeal to customers who are looking for the next hot gadget, and to existing customers who have been long waiting for the next WOW product from RIM. If the BlackBerry 10 lives up to expectations, it will only solidify RIM's existing customer base and perhaps incrementally increase it.
On the other hand, if the product disappoints, then expect another hit to RIM’s reputation. I consider that unlikely. Either way, the stock is not likely to go up much higher from here. I expect it to tread water for quite some time while RIM puts up a strong fight from here on out.
malayappan has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!