Friday, July 29, 2011

RIMM = PALM or Apple?

When I was a young boy (back 15 years ago give or take) I remember my dad coming home from work with this weird  looking device. He told me that it was a phone that also let him read his email. I thought it was pretty cool and so did he until he started actually getting work email while he was at home. This was the beginning of a long run of business world dominance for Research in Motion. My dad would go on to bring home a blueberry and possibly a strawberry, huckleberry or something else, I'm not quite sure. I just know that when he would take it out I would give him a raspberry. All joking aside (at least for the next 10 seconds) Research in Motion had it made. They were recognized as the only company that had an email system for cell phones that was safe (encrypted properly) for big businesses to use. Completely ignore the wildly popular (at least in the past) retail users for a second and think about how many businesses there are all over the world. Now stop ignoring the retail users and realize that his was a vast empire not just a cell phone manufacturer.
     Before the term smartphone was fashionable people were using Blackberrys to check and send email messages as well as surf their favorite websites. Research in Motion was first to market and enjoyed the benefits that came along with it. Adults were amazed at the capabilities of the devices that they were putting out and kids wanted to be the first to have them. Despite the fact that the service was expensive, and kids really had no use for the device, every phone that was made was sold. Research in Motion was doing great. Too great.
     There are two types of successful companies. Company A is the company that regardless of past success continues to be innovative and forward looking. This group contains Companies like Apple, Google, Facebook, etc. These companies will remain successful because even when they are doing well they are still coming out with new and better products/services.
      Company B is the company that fell from grace. For the purpose of this article the best example of one of these companies would be Palm. Palm came out with a completely new way to track every day activities. The Palm Pilot enabled you to keep your calendar + a note pad in your pocket without worrying about tons of clutter. As the years went by Palm would add a few bells and whistles but basically kept the product the same. They also decided that it would be better to focus most of their energy on this one product leaving little time/budget to work on other products. As time went on Palm started to bleed market share to other companies who began to compete both directly and indirectly with their Palm Pilot. By the time management decided it was a good idea to diversify their portfolio of product it was too late. The walls were closing in, the share price was dropping, and there was nothing that could be done. The once multi-billion dollar company was bought for just $1 billion dollars and not even for their main product. Palm had developed an operating system for their smart phones that was considered to be one of the best (if not the best) available at the time. The problem was, in another magnificent blunder, Palm signed an exclusive agreement with Sprint who had considerably less users than AT&T or Verizon. By this point the Palm phones were also competing with the I-Phone and Blackberrys (this was before droid phones). Everyone was watching the stock price drop down to  $15...$12...$10...$8...$5 and finally HP had seen enough.
        Now let's consider Research in Motion. They had an innovative product that both businesses and consumers were buying by the boat load. They put out new phones periodically that had some random bells and whistles, but they never really went out of their way to develop new and different products. They have a great service called BlackBerry Messenger (BBM) that allows people to chat in a way that is more efficient than SMS. This service would be valuable to any cell phone company.  The stock price has gone down by about 65% in the past 6 months and it doesn't show any signs of stopping. This sounds a lot like company B to me. The most dangerous words an investor can say is "this time is different". So let me ask you, is Research in Motion more like Apple or Palm?

Full Disclosure: I do not have any position in Apple, Hewlett Packard, Google, Facebook, or Research in Motion. (Especially Research in Motion!!)


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  3. Research in Motion seems destined to fail with it's inability to launch products that are any better than their peers. The mobile handset space is very competitive, especially since Google came to market with their Android operating system. The company, in my opinion, suffers mainly from two things: the first is having split leadership at the top with Co-Ceo's; secondly, they suffer from a lack of innovation as you touched upon.

    What the article should mention was how awful of a product they brought to market in the tablet space. So here's some context, they were very late to the party and once they released it, most companies established market share. Don't expect them to take a significant piece of that market share with a lousy product that according to experts is too thick, the border around the screen is entirely too large, and doesn't offer much more than their competitors.

    Does the Toronto based company have any tricks up its sleeves? It's a possibility. They purchased a company to advance their mobile software technology. You can see those changes on their new handsets that are very iPhone-esque. Currently the street's sentiment is a 'hold' on the stock with nearly an equal amount of analysts with a buy/sell rating. Since the stock has taken such a tremendous hit to its share price, many traders may see this an inflection point and it may very well be.

    -Scott Roth