Last week on the day when Apple launched the iPad 2 , Research In Motion (RIM) shares dropped over 10%. That’s not to say that RIM was unprofitable, far from it. RIM reported a higher-than-forecast fourth-quarter profit on Thursday March 24th, with an increase in BlackBerry phone shipments of 52.3 million, a revenue growth of over $19.9 billion, and a 47% increase in earnings per share. And that is amidst a backdrop of iphone and Android sales, as pointed out in a recent Globe and Mail article. However, investors have lost confidence in RIM’s ability to innovate regardless of BlackBerry sales, and that has left them running for the door even with huge profits:
“RIM’s share of the global smart-phone market has indeed taken a hit from rising competition from Apple’s iphone and Android-based phones. According to International Data Corp., RIM controlled less than 15 per cent of the market in the fourth quarter, down from nearly 20 per cent in the fourth quarter of 2009 – a substantial setback… Investors, it seems, are easily intimidated: RIM’s share price reflects the bearish case despite overwhelming evidence that the company is thriving.”
(Globe and Mail, March 25th 2011)
Many have compared the impending demise of RIM to the likes of Nokia and Nortel. Many analysts believe that the PlayBook, with its not so sexy name, is RIM’s last chance to prove to the market it can innovate alongside Apple. There may no longer be any middle ground for RIM. Many analysts feel the PlayBook is either going to make or break RIM when it debuts on April 19th.
Take Nokia for example which pioneered the cell phone, and was the darling of many investment portfolios, until the iphone debuted in July 2007. Today Nokia produces cell phone parts and cell phones for the lower end market. Palm created the PDA (personal digital assistant) with touch screen technology back in 1996, but was unable to bring that technology successfully to market after its IPO in 2000. Palm later filed for bankruptcy but was bought out by HP in 2010, yet their phones and OS were superior to BlackBerry. Many analysts have lumped RIM in with Nokia and Palm, going so far as comparing RIM to another Nortel.
However the demise of RIM, which has been talked about for years may be more hype than actual fact. RIM is cash rich, has low debt, and could be under pressure to start paying a dividend. Ironically the PlayBook with its less than demonstrative name, is actually superior to the iPad 2, and may actually exceed the iPad 2 in sales. Of course as most of the public, I was sceptical of RIM’s ability to produce a superior product to Apple, but with the PlayBook that is exactly what RIM has done.
Comparing the PlayBook and iPad 2
One thing that has made both the BlackBerry and the iphone successful are the specialized apps and closed software systems. For example the closed email software and blackberry messenger service (BBM) have been winners for RIM, and the innovation of apps coupled with novelty for the iphone has been a big winner for Apple. However any developer, who creates apps for the iphone, understands the huge wait time from development to market – and all the headaches that go along with developing for Apple.
However, RIM’s new tablet the PlayBook, is allowing access to open source Android apps – a brilliant move. And RIM has even been going further, courting smaller software and app development firms to make its products more innovative, and its software more intuitive.
In addition the PlayBook is technically superior to the iPad 2 in speed, downloading, and browser performance. The online reviews clearly show this to be the case – just Google “compare the iPad and playbook”. Apple also came under controversy for not supporting Flash in its iPad debut, yet the PlayBook downloads Flash without an issue. All of these factors including the smaller size, but primarily the openness to access android apps, makes PlayBook a winner over the iPad 2. Whether the buying public agrees is another matter.
The real question is not whether the PlayBook is better than iPad 2, but whether it will be enough to save RIM. If sales of the PlayBook don’t meet market expectations, and the debut of the iPad3 leaves PlayBook in the dust, RIM could be finished. Let’s face it, you can go to any big shopping mall and find an Apple store, but you won’t find a RIM store.
Why Apple is in trouble
All companies go through cycles of innovation and achievement, and I believe both RIM and Apple have reached their pinnacle. The iphone is an incredible innovation, probably one of the most influential creations of the 20th century – as anyone knows who owns one. The iphone was so revolutionary that it actually pummelled Nokia, bankrupted Palm, and caused RIM a big shake up in their global and comfortable market share with BlackBerry.
Since the iphone, Apple has been under great pressure to innovate and surprisingly they haven’t. The iPad is actually nothing new, and was created as the original prototype for the iphone. But Steve Jobs realized that launching the iphone before the iPad was a winning strategy. And that strategy paid off big-time, when global loyalty for the iphone translated into huge sales for the iPad in April 2010.
Yet the iphone has been plagued with technical problems with all its product releases, of late the antennae location in iphone4 which cuts off reception, because of its poorly designed location. And surprisingly the iphone is not as intuitive and user friendly as you might think. I’ve discussed the iphone with those who use it, both for business and pleasure and all have some complaint that makes them dissatisfied with the product. One of the major complaints with the iphone is its lack of email functionality compared to the BlackBerry.
As everyone knows Steve Jobs is in failing health with pancreatic cancer, and that was most apparent when he publically launched the iPad 2. Since then he has been tightening up the software and developer access to Apple. In the long run, this tightly closed environment may be exactly the catalyst that causes Apple to lose market share to the up and coming Android. Ironically, RIM is welcoming and opening up the PlayBook for open source and Android developers.
The pressure on Apple to innovate has become the norm for market expectations, and the buying public. Everyone expects Apple to create magic. Anything short of another iphone could be a disaster for Apple, and may cause it to lose significant market share. Combine that with the new reality that Apple will be a company without its founder Steve Jobs. Regardless of the team Jobs has surrounded himself with, this leaves Apple with an unknown future. I’m not suggesting Apple is losing market ground, far from it. But now may be the time to take profit on Apple (or at least stop-loss at $300), while the going is good. Technology is one area of investing where change is the only constant. I’m more cautious with Apple now, based simply on the level of innovation and competition that is now emerging.
Android, the new kid on the block
So what’s the big deal about open source and Android? In 2005 Google purchased Android Inc. and feverishly began developing an open-source mobile communication platform based on the open standard of Linux and Apache (which runs web host servers for example). While not fully developed and under media pressure, Google finally launched Android around November 2007. But Android slipped under the radar, and was quickly overshadowed by the success of the Apple iphone, and the loyalty of BlackBerry users.
Until recently, a lot of people underestimated Google’s Android as a significant market threat to Apple and BlackBerry. Yet in Asia, Android is the leading mobile platform. Android offers everything the iphone does, but better! That’s barring some security issues, but that was quickly resolved by Google in recent updates, and will continue to be in the future. The primary appeal of Android is its open source platform, which allows developers to easily create apps and other software enhancements, unlike Apple or RIM BlackBerry. This open source development model is what launched the social media boom over the last few years, as developers could write code to integrate into twitter and facebook, or create their own sites with rich user interfaces.
Samsung has been one of the largest producers for Android phones, primarily with the Galaxy. And the quality of Samsung has come a long way – the Samsung Galaxy is a knock out! Recently we had friends over for dinner. He placed his iphone4 on the counter, and his wife’s Samsung Galaxy running the Android beside it. No question, the brightness and crispness of the Galaxy and the apps on the Android surpassed the iphone by leaps and bounds.
While it’s early days for Android, this puts the pressure on Apple, which is already losing market share to Android. This is a similar scenario to when the iphone literally decimated the BlackBerry market share.
RIM and Google get friendly
The decision for RIM to ally itself with Google’s Android platform was an excellent business decision. RIM could not take on Apple directly and expect to compete. By allying with Google, and allowing Android Apps to run on PlayBook, RIM has essentially created a Google versus Apple scenario. This takes the heat off RIM and allows the PlayBook to evolve alongside Android and the iPad.
The PlayBook may become a primary contender. We will have to see what happens when PlayBook hits the shelves on April 19th. This is a make or break scenario for RIM, and it all depends on what consumers think of the new playbook. The reality is RIM has been creating great products lately, but hasn’t been rewarded for its efforts. Anyone want to buy or short RIM shares before April 19th?
Yes I’m biased, I own a BlackBerry. It’s easy to use and handles multiple email accounts flawlessly. I can look up stock quotes and movies, and I don’t care about gaming. I’m not a big fan of the iphone, I like the Android OS, and I think Android is the future. On another note I do not own RIM stock, and I won’t buy before the playbook debut.
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