Smartphone Maker Gets Fresh Start - or Boiled Away

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Recently I wrote a column describing what I saw in the real world as Research In Motion’s (NASDAQ: BBRY) declining market share, and the longs had at me. In fairness, and for my own knowledge, I thought it would be useful to do a SWOT analysis of the company, and see what we really have.

Strengths

  • Brand name. The original Blackberry was the “Crackberry” due to its addictive nature and ease of sending an email. This name still has value in today’s marketplace.
  • Presidential endorser- Obama used a Blackberry when elected. Back then RIM’s security was most trusted and used by the US Government.
  • For all intensive purposes, should be given credit for inventing the smartphone. Must have some creative staff on board.
  • Trading over 30% below book value. (Book value is a very relative term with today’s accounting)
  • Despite falling market share, still has 80 million users.
  • According to stats on Yahoo!, has $4 a share in cash and no debt. That is actually pretty huge for a stock trading at $11.54 a share, especially when it got down to almost $6 not so long ago. Would have been hard to go wrong investing at that point.
  • Much stronger overseas than in the US.

Weaknesses

  • Its tablet offering, Playbook, was not well received by the marketplace. In fact, I don’t know a single person who owns one, and the company had a hard time getting apps made for its ecosystem.
  • Management: Publicly stated that no consumer would want a phone whose battery drained quickly, and with a screen so big you would have problems fitting it in your pocket. Obviously this was a major misstep and the stock has deservedly cratered since.
  • Market share has declined significantly in the US over the last twelve months, from 8.5% to a nearly irrelevant 1.6%. This makes the company almost irrelevant in America, where the consumer trend is generally set.

Opportunities

  • BB10. The company’s real last hope. So far it has gotten some pretty good press.
  • Goldman Sachs' analyst gives BB10 a 30% chance of success, which is much more than I give it after watching so many people I know and encountering strangers who planned with gusto to switch over to the iPhone. Nevertheless, Goldman doesn’t get paid all that money for no reason. 
  • Cell phone carriers wanting to break the stranglehold and their high subsidization of the Apple (NASDAQ: AAPL) iPhone and Google (NASDAQ: GOOG) Android products might very well promote the new Blackberry and put it as a front and center choice for consumers.
  • It is not out of the question that a big tech company with no game in mobile, specifically I am thinking of Hewlett-Packard (NYSE: HPQ) here, might make a bid for RIM if the price is right, reducing ultimate downside risk.

Threats

  • Is BB10 too little too late? Everyday that Blackberry waits it loses more and more of its user base who are using their upgrade to switch the iPhone or Android system who are very unlikely to switch back.
  • Yahoo! (NASDAQ: YHOO) CEO, Marissa Meyer, was quoted just the other day as saying: “We are literally moving the company from BlackBerrys to smartphones.” (My bet is to her old company and Androids) Again, businesses were a big buyer of the Blackberry, this is just another example of them losing relevancy.
  • Patent trolls: Not Microsoft or Apple, nope, Nokia (NYSE: NOK)  is suing Research In Motion “alleging breach of contract related to the sale of WLAN products with Wi-Fi capabilities.”
  • US Government in the process of switching over to iPhones.

Bottom Line

I just don’t see the BB10 restoring RIMM to its former glory. Management badly misjudged consumer desires and Steve Jobs and Google ate their lunch. At least in America, the RIM has lost so much of its market that the BB10 launch will almost definitely fall on deaf ears.

That said, if for some unforeseen reason BB10 is a huge success, and it is more likely to be so overseas where smart phone penetration isn’t nearly as high as in the US thus the offering will fall on virgin eyes, then RIM shares might continue their upward momentum. I myself am staying clear, but I can at least understand the logic behind purchasing shares. 


margiecfl has long positions in Hewlett-Packard, Google, and Apple. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple, Google, and Yahoo!. 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!

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