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Research in Motion Drops 10% After Hours, Precisely As We Warned Two Months Ago – MARGIN COMPRESSION!!!
On January 20th, I posted “Blackberries
Lost More Market Share Than We Bearishly Anticipated While RIMM’s
Share Price Spikes: Is It Time To Revisit the Bear Thesis?”. I
turned bearish on RIM last summer and made some money on its dip back
then. Shortly afterward, its shares did the QE thing, despite the fact
Android started sucking up market share everywhere while simultaneously
squeezing margins like orange juice. As excerpted from the
aforementioned post:
We have updated our mobile OS and handset
manufacturer market share model and will make it available to
subscribers as an online app by next week. In the meantime, let’s
review some of the findings – vendor by vendor. First up is Research in
Motion. This was a profitable short in 2010, with the share price
hitting our targets within 100 pennies. Since then, the stock has risen
appreciably. Let’s take a look to see if the rise was justified.
Page 5 of our Research in Motion forensic analysis (released in the summer of 2010 - 
RIMM Forensic Analysis and Valuation – Professional & Institutional or RIMM Forensic Analysis and Valuation – Retail)
clearly stated that while we expected RIMM’s handset shipments to rise
as a result of a rapidly expanding smartphone market, it will lose
considerable market share….
As it turns out, it appears that we were
erred slightly to the optimistic side with an 18% market share estimate
for 2010. By the end of the 3rd quarter, RIM has fallen to 15.3%
according to information calculated from IDC, and its decent has
accelerated far faster than even we (the bears) have anticipated – a
full 350 basis points for the quarter. This is 6x the decent of last
quarter and 7 x the decent of the quarter before that. It is quite safe
to assume that they will be materially below this point at year end
(the data that we crunch is lagged by a quarter). This market share
loss is most assuredly caused by the outsized growth of Android, which I
will demonstrate in a minute. Below are charts generated from an
updated version of the subscriber document 
Smartphone Market Model – Blog Download Version:
As you can see above, for the full year
of 2010 RIM has trailed smartphone market penetration growth and that
trail has increased each and every quarter with the rate of decent
rapidly increasing.
RIM’s share price has benefited from an
increasing equity market as well as the announcement of new products.
The Torch, although possessive of redeeming new qualities, is
essentially still a generation behind Apple and 1.5 generations behind
Android. See RIM Smart Phone Market Share, RIP?…
Research in Motion is following the EXACT path we at BoomBustBlog had
laid out for it since the 3rd quarter of 2010. Notice the share price
announcement since our January 20th pronouncement.
So, what did RIM have to say during the earnings release? From the WSJ:
Research In Motion
Ltd. posted a 32% jump in quarterly profit, but the BlackBerry maker
warned of lower earnings and revenue in the current period. Shares fell
10% in after-hours trading. The Waterloo, Ontario, company also said it
plans to allow Android applications to run on its PlayBook tablet
computer, due out next month. The move will greatly expands the number
of apps available on the PlayBook. But it is a concession by RIM, as it
has struggled to compete against Apple Inc. and a slew of devices running Google Inc.’s Android software.
This should be of absolutely no surprise to BoomBustBloggers!
RIM said it shipped 14.9 million
BlackBerrys in the quarter ended Feb. 26, near the top of its guidance
of 14.5 million to 15 million units, but below the 16.2 million iPhones
Apple sold in its December quarter.
RIM has set the North American launch
of the PlayBook for April 19. Executives said Thursday the tablet’s
rollout wouldn’t be affected by the quake in Japan, and RIM plans to
release three more tablets this year.
The PlayBook launch comes as RIM
struggles to compete in the U.S. and increasingly relies on sales in
emerging markets for its growth, where cheaper models make up more of
sales.
The competition is coming in both the consumer and corporate markets, the latter of which RIM has traditionally dominated.
Again, clearly forecast in the BoomBustBlog research reports.
… For the current quarter, which ends
in May, RIM forecast earnings of $1.47 to $1.55 a share on revenue of
$5.2 billion to $5.6 billion. The outlook is below the Thomson Reuters
mean estimates for the quarter of earnings of $1.65 a share on revenue
of $5.64 billion. RIM
said the guidance reflects a shift towards cheaper handsets and an
increased level of investments for research and marketing, especially
for its tablet. The range is also wider than usual “to
reflect the risk of potential disruption in RIM’s supply chain as a
result of the recent earthquake in Japan,” it said.
I have been preaching MARGIN COMPRESSION for some time now. Google’s
Android has totally upended the mobile computing space by issuing in
nearly unassailable business model that pushes a technology that grows
and morphs at least 2x the speed of its closest competitor. It has went
from last place to 1st place in global market share in just over a year
(historically unprecedented) while retaining the pole positing as the
fastest growing mobile OS. RIM is getting smoked and these quarterly
reports are heavily lagged and backward looking. They don’t come close
to revealing RIM’s current position and predicament. RIM will get smoked
in the tablet wars, even if it’s Playbook is a hit – which I doubt it
will be. Speaking of tablets and margin compression…
Android’s Disruptive Advance: Technology Refresh Cycles Previously Measured In Years Are Now Measured By Weeks? Wednesday, March 23rd, 2011
Competition Heats Up In The Mobile Computing Space On Many Fronts – Prices Driven Down Once Again By The Big Players Tuesday, March 22nd, 2011
Comscore’s
Latest Stats Show Android Wiping The Floor With Its Competition,
Besting Apple & Everyone Else By Ever Greater Margins Tuesday, March 8th, 2011The Tablet Pricing Wars Have Commenced, Targeting Apple’s iPad 2 Which Is Not Even For Sale Yet… Monday, March 7th, 2011
Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! Friday, March 4th, 2011
Shares of RIM fell $6.45 to $57.64 in late trading Thursday, after ending the 4 p.m. Nasdaq session at $64.08, up $1.97.
Front month and two month put holders/BoomBustBlog subscribers should get paid quite handsomely!
Professional and institutional subscribers are strongly urged to review in full detail, the BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download post and the actual professional/institutional subscriber model included therein.
Reggie Middleton on Research in Motion
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- RIM Smart Phone Market Share, RIP?
- Android is gaining preference as the long-term choice of application developers
- RIM Smart Phone Market Share, RIP?
- Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion
- The BoomBustBlog Multivariate Research in Motion Valuation Model: Ready for Download
The following are subscriber downloads and illustrations. Please click here to subscribe or to upgrade your subscription.
- RIMM Forensic Analysis and Valuation – Professional & Institutional:
a 45 page analysis of RIMM, it’s strengths, weaknesses and prospects
and probably the most thorough valuation that I know of concerning
this company.
- RIMM Forensic Analysis and Valuation – Retail:
a 10 page abridged version for my retail clients, containing all
that you need to know including the market scenario valuation
analysis (see Many More Black Eyes for the Blackberry? A Complete Forensic Analysis of Research in Motion for more information).
- Smartphone Market Model – Blog Download Version: the interactive smart phone market analysis and penetration model, includes data for HTC, Apple, Nokia and Research in Motion
- RIMM Multivariate Valuation Mode: the big Kahuna, for professional and institutional subscribers only. Please review the following overview of the model.
- advertisements -
Good short Reggie . . . . better than your (cue poke in the ribs;) Google Android long
Reggie - a great read, thanks. A relaxing and interesting break from the butchery in the gold and silver markets and the BTFD slogans.
What Reggie missed was the wicked short squeeze before this drop - partly QE, partly due to inventory problems at APPL and GOOG.
http://fundmanagernews.com/rimm
Nonetheless, it looks like RIMM is the new Nokia and that is terrible news for shareholders.
Blackberry is dying a rather fast agonizing death.
If RIM doesn't diversify to make chips for Apple and Android smart phones they will be the Betamax of the current decade.
I don't have a horse in the race, this is simply what I have observed every day for at least the past two years.
Rule of 3 and 4 says that there will be 3 major market players, and the 3rd place one will be 1/4 (a fourth) the size of #1 - how is that playing out at this point?
In other news, in the Philippines they are releasing a $100 Android smartphone, no contract (PLDT, under their Smart cell carrier label) - should be interesting to see where that goes as a leading-edge development.
i say buy on this particular drop if that's what it actually does on the open--and that's doing no research whatsover but based on one thesis: this is the most competitive markeplace on the planet. "it matters not what the actual value of money is to them." in other words "they have bigger problems"--just "little stuff" like "will the product launch be the immediate end of our business." or "will it make us the richest people in human history." in other words "if they do have a killer app or device" they are money, too. this is something never discussed "appropriately" on this or any other site actually although CNBC "plays footsie" with it sometimes. in short "like i give a phuck about the value of your dollar." in this line of work "there is not the time."
Well, I followed Reggie on the tech thesis and walked into a short blow-up on RHT and was licking my wounds. I knew RIMM would be somewhat bad, but after watching RHT...I didn't want anymore pain. Covered down $7 points today. =0(
I hear a rumor that Motorola wants to create their own OS to avoid the margin compression of all the cheap crapps out there. And I also hear that Google will not release Honeycomb to any vendors till they get it correct.
Margin collapse in the others possibly, while margin for Apple stays steady and strong as they continue to be more than just iThings.
Hint MacBookAir, MacBookPros, and soon new OS, Desktops and MobileMe. And you know what... it all just works.
I bet you one of my silver "rounds" for a subscription that Apple outperforms the Goog!
;-)
all u have to do is look around and see no one buying new is buying the blackberry, i moved to the droid incredible and am long apple and google
reggie, how is that short apple position working for ya? 1 out of 2 ain't bad
+1 Other than a slight advantage in crypto functionality and the existing embrace of IT bots everywhere, RIMM is fooked.
+1, maybe 2. Just traded in my BB for an iPhone. So was everyone else at the AT&T store....Obvious.
What are these "desktop computers" of which you speak? A pager which receives and transmits e-mail? Highly unlikely!!!
All electronics are transient, they are merely an illusion created by satan to immerse you in the moment so you do not contemplate your ultimate destiny or your path in life.
Many people mistake Steve Jobs or Bill Gates for Satan, but that is common error caused by their horns and tails.
If you want to own commodities, it might as well be oil or precious metals, computers and software will only get more common and cheaper, only the tangible will increase in value.
RIM plunges AH?
Shhhhhh!
This does not fit in with MSM Mantra,"everything is getting better."
Satellite mobile broadband you beachez. Ha
Damn good company...and good bellweather.
Tech stocks would be in sell pressure territory...watching samsung on Korean consumer sentiment at a 2yr low. the new 10" tab comes out soon, if sales sketch out...
Wow fundamental analysis works once in a while during QE
only after horrible earnings.
after that you gotta BTFD!
they're Canadian.. probably not in many pumpable 401k funds in the states