More Pain Ahead For Black Beauty

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

Last week’s broad based market rally swept Research In Motion (NASDAQ: BBRY) along without any significant developments. Shares of the Canadian Blackberry maker were beaten back again 4% on Monday with a slight gain on Tuesday. I believe that even if they released the Blackberry 10 tomorrow it wouldn’t be able to save them. Unfortunately they have scheduled the premier of the fabled device for next April. Like many investors, I believe that by the time they finally release the Blackberry 10, they won’t be able to give the devices away.

RIMM’s best markets are in developing economies like Indonesia. But even there they are quickly losing ground to cheaper Android smartphones. Some former Blackberry customers are hanging on to their older models for its messenger service, but that will only last as long as their friends and co-workers do so as well. In the case of Yahoo (NASDAQ: YHOO) and its employees that’s about to end abruptly.

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Revenues at Research in Motion continue to plummet

Yahoo’s new CEO Marissa Mayer recently announced to her employees in a leaked memo that they will be setting aside the old Blackberries and choosing a new phone. The employees are to choose between Apple’s (NASDAQ: AAPL) new iPhone 5, one of the flagship Android devices from Samsung or HTC, or a new Nokia (NYSE: NOK) Lumina running Windows 8. The purpose for their company phone redistribution has little to do with how happy the employees and management are with their Blackberries: according to the leaked memo, Mayer insists that Yahoo’s employees, "have devices similar to our users, so we can think and work as the majority of our users do." Even the sinking ship that is Yahoo understands that the Blackberry is fading fast.

Research in Motion’s last chance to remain relevant is the highly anticipated Blackberry 10. Unfortunately its new, expensive, QNX built OS is causing several serious problems. The current BES system will not support the new Blackberry 10, and the older versions won’t work with the new BDS server intended for the BB10. They have plans to create a third web interface for clients to manage the integration of older blackberries and the new, but it is unnecessarily complicated.

The new QNX platform compatibility issues have made upgrading from previous versions to the new Blackberry incredibly difficult. Transferring all your contacts to a new Android device or the iPhone will probably be easier than implementing the new Blackberry platform. If they can’t get their new operating system problems ironed out before the BB10 release, they stand to lose a significant number of existing business enterprise customers who, like Yahoo, decide to replace their Blackberries with a more popular platform.

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Android and iOS continue to squeeze the Blackberry out of the mobile platform market.

The new phone will run on the QNX Software built operating system that their lackluster PlayBook tablet is using. Once the BB10 is released there will be two mobile devices with that Operating System, RIMM is banking on there being a lot more. They intend to license that new OS and create a new revenue stream. Unfortunately for RIMM and its relatively unknown mobile platform, I can’t imagine anyone licensing it while Android is available. If you were a smartphone or tablet manufacturer with the option of installing non-proprietary Android, a platform potential customer know and love, or RIMM’s unknown mobile OS for a fee, which would you choose?

Unsubstantiated rumors of Samsung’s interest in licensing the Blackberry OS were enough to give RIMM shares a boost last month. Samsung, which has a 44% share of the million Android devices activated each day was quick to state firmly that they are simply not interested. If Samsung, who are also making phones with a Microsoft (NASDAQ: MSFT) Windows 8 platform, were interested in buying up RIMM or licensing its OS, they would need to spend a significant amount of money and resources to market them. The consumer electronics giant has the resources to spare, but apparently thinks it isn’t a wise investment. RIMM’s ill-conceived idea to purchase an OS with the hope of licensing it to third parties appears dead in the water.

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Research in Motion is rapidly losing market share to Google and Apple.

Even the most optimistic investor should see that RIMM’s future in the smartphone market is limited to, at best, a handful of business enterprise customers. The odds of them licensing their mobile OS to other mobile device manufacturers are also very slim. What RIMM does have is a fairly solid balance sheet. Total assets over the last several years have steadily increased from just over $8.1 billion in February 2009 to $13.7 billion in March 2012.

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If you are a value investor and want to buy in as the stock dips below fair value, finding the bottom is going to be tricky if RIMM begins selling off assets as expected. I suggest waiting until they approach the release date. RIMM shares should see a rise leading up to the unveiling of the BB10, similar to Nokia’s run up to the Lumina debacle later this month. If they ever do begin selling the Blackberry 10, I recommend initiating a short position just before the unveiling.

Compare and Contrast

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