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Will the PlayBook save RIM?

RIM - Research In MotionLast 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

RIM-PlayBook

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.

Compare PlayBook with iPad

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

The jPad

jPad courtesy of techbyter.com

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

AndroidSo 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?

Disclaimer

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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45 Responses to "Will the PlayBook save RIM?"

  1. Echo says:

    Great article Ninja! I’m curious to see how this all plays out. While RIM may have made all the right strategic alliances, the delay in releasing the Playbook could be their downfall if it doesn’t post immediate sales.

    I’m a BlackBerry guy too, so I hope they come out ok.

  2. @Echo, thanx for dropping by, and the compliments and retweet! :)

    I noticed I forgot to add you onto my blogroll, so consider that done. Cheers!

  3. A really interesting and well presented article Ninja! I love apple products, but I think you are correct that once Steve Jobs leaves the company (with so many health problems, that can be anytime) it will be harder for them going forward. We’ll just have to wait and see.

  4. Excellent article. I have never had a position with Apple, as it really goes against my investment thesis, but if I did have a position I would cash out now. I’m also concerned about Steve Jobs’ health, and whether they can continue to innovate without him. The stock clearly has a premium on it with Jobs on-board. Same thing with Buffett and BRK. That’s the price you pay to have an all-star CEO running the company. Unfortunately, when something negative happens to said person the company is hit pretty hard. The going is great when that all-star CEO is innovating and marching the company upwards.

  5. Kanwal Sarai says:

    In our household there are 2 iphones, 2 ipods, and a vintage imac (that still runs flawlessly) so I might be a little biased here.

    I see 2 things working against RIM:

    1. RIM is coming late to this party
    2. For a company who’s primary market is corporate enterprises, why did they call it the PlayBook? It sounds more like a leisure device than a business tool

    Jonathan Ive is going to be the next Steve Jobs.

  6. Wow man, this post was awesome!

    You’re in my round-up FOR SURE! :)

    RIM has cash, yes, but I can’t see them paying a dividend. They need to use that cash to infuse it into new products and solutions. Just my take.

    I’m in the market for a new smartphone, and I’m leaning towards one that runs Android. It can only get better, and it’s pretty darn good from what I’ve seen now!

    I think the BB will be around for years to come, but I think the predominant smartphones of tomorrow will be a playtoy for the masses more than a business tool. I do hope RIM continues to succeed, we need these types of companies to flourish in Canada.

    Again, great stuff Ninja and excellent comments folks.

    Mark

  7. @everyone, thanx for the compliments and feedback! Some really interesting comments here..

  8. Here is a nice article about the mobile industry. Apple has 4% of the market but has 50% of the profits … (http://tech.fortune.cnn.com/2010/10/30/iphone-4-of-market-50-of-profit/?hpt=T2)

    I just switched from a blackberry (bold version) to an iPhone for business purposes. It’s provided by the company. Typing on the iphone really sucks but I find software usage much better and with a wider choice.

    If RIM can successfully integrate the Android OS, they should have a chance. Not just on the Playbook though but with all other devices. Think of the PC and Mac war, more software were present on the PC and it drove its success. At the moment, developers build for iOS, than Android and then RIM.

    My kids certainly don’t ask for a BlackBerry, they ask for ipod touch and such. There is definitely a momentum there … From a business perspective, the BBs are much cheaper than the iPhone. That’s why at our office, requesting an iPhone must have a real business purpose other than being in touch since the BB can do that.

    RIM was on top for a while and they could not turn around fast enough to compete with Apple and they are playing catchup now. They have to reduce their margin to compete unfortunately …

  9. Dr. Capital says:

    It is true of Apple that any disappointment will hammer the stock price. Apple continues to be priced for perfection, but can they continue to deliver it?

    Another interesting development that none seems to talk about is Microsoft’s new WP7. It is a very innovative system; without going into detail here, one can find some reviews on engadget and see that WP7 is going to be serious competition to iOS and Android. Partnered with Nokia, who are amazing at designing hardware (and had difficulty due to aging Symbian), Microsoft stands ready to compete with Apple.

  10. @PIE
    Thanx for posting! Yes the young kids like Apple don’t they? But they will also like Android even more. Remember NA tends to be a year or two behind Asia in technology trends.

    @Dr. Capital
    Thanx for posting! An interesting comment, I will have to keep my eye on the WP7 ;) That could also put Microsoft back in the game as well.

  11. MoneyCone says:

    Loved the post DN! Blackberry brings back memories of erstwhile Palm. I so wanted Palm to succeed…

    With iPhone and Android the battlefield is much different than what BB is used to. Rather than touting on their core strengths, BB started poorly imitating iPhone and all their products off late has been ho hum.

  12. @MoneyCone
    Glad U liked the article! The comparison to Palm isn’t too far stretched at all. If it wasn’t for the integrated email, BBM, and other solutions, I think RIM would have already gone the way of Palm. Havign said that I just happen to like my BB :)

    But when my contract ends I’m looking at iphone or Android. RIM has been drifting on “ho hum” for a long time now and seems to be very profitable doing so. Where other companies would have folded, RIM keeps managing to build profits.

    • TiredWorking says:

      Hey Ninja,

      Keep up the good work.

      I’m curious as to what you think about RIM at these prices. It closed at 6.87 today.

      • Hey TiredWorking, you know its a great question! and the answer is NO do not buy. RIM is looking to be the value-trap that Nortel also was during the dot com bubble, and not a value play.

        I have a BlackBerry and I like it – I like the keyboard and I don’t like the iPhone much. Many people I know like BlackBerry, and so do 18 year olds who love it for texting and BBM. I really don’t want to move to Android or iPhone when my contract renews, and especially as I like BlackBerry Email Service. The problems at RIM are not becuase of the device or service – becuase not everyone wants an iPhone.

        But here’s the problem. Mr Heins is no turn around CEO, and he has no idea how to turn around the company either – he’s a listless and drifitng captain without a strong vision. He is waffling at a time when the company needs strong leadership.

        All RIM needed to do was two things, and they messed up on each account: (1) scrap the playbook, and (2) just focus on two BlackBerries, a curve for the younger consumer market, and a bold for the business crowd. Simple and done.Instead they have focussed on too many BlackBerry models, creating a nightmare for app and theme developers.

        Unless RIM gets a new CEO other than Thorston Heins, this company is going into the ground in my opinion.

        Cheers

        • TiredWorking says:

          Thanks for your opinion.

          That means that you disregard the supposed BB10, new playbook launch and cost cutting measures. I’m a Blackberry user as well and it does all I need it to do so I never even held an Iphone.

          I do know 90% of my friends in the Caribbean and Africa all support Blackberry. It’s #1 in those parts and many other places in the world still.
          I’ll be watching the cash burn over the next few quarters.
          It’s very difficult to turn around a company from these depths, especially when customers are walking away daily.

          Apple shares traded around $10 before they managed to turn the ship around not so many moons ago. Many people then wrote them off for dead too.

          Maybe the story is not over yet…..maybe?

          • Nice comparison to AAPL. ;) Maybe and lets hope so!

            Cheers

            • I’ll share my thought … This is more of a mobile and first to market marketing strategy though.

              I don’t see mobile as just a phone anymore but as a smart phone which implies that it needs apps. Apple was first to market with an efficient ecosystem to entice developers to develop for it. This has made its way on to Android and it is now on PCs and many other platforms.

              It’s also worth noting that Android install based is greater than the iPhone and it even has better hardware but that doesn’t change that the iPhone app market is more profitable and that’s what developers look at. Even if RIM had a better phone and a better OS, they have no market and first to market on an innovation is key (remember VHS vs BETA or even Blue Ray vs HDVDV … better doesn’t always win).

              Also worth noting that MSFT is hungry for that market and want to have its mobile device be an extension of the Xbox brand and the Metro style is a path in that direction with Window 8 providing it as a default. That’s a stiff competitor to RIM …

              RIM was setup as a grower and researcher but it cost money and if they aren’t going to bring in the same amount of cash, the company has to adjust and reinvent itself. All other competitors have major hardware to link multiple devices or a free platform in Android.

              Aside from the keyboard and email, RIM doesn’t seem to have anything :( They need a major innovation from my point of view or do what IBM did (go from hardware provider to a service provider).

              • And I’ll share my thoughts next week with a detailed post and follow-up. :)

                “Aside from the keyboard and email, RIM doesn’t seem to have anything…”

                Wrong! and I’ll explain why. But it won’t be the RIM we know and see today.

                Cheers

  13. Philbert says:

    So, any thoughts on the recent events in BB land- I own RIM, think they made good products, but their execution has been terrible recently. Scared this will be a permanent loss for me.

    • Philbert at this point, I assume you would be selling at such a loss – that it might make sense to hold and wait. If there is any potential for a takeover, then its worth holding just for that reason alone. I can’t advise you – but that is what I would do. ;)

      If I was a big company (like Miscrosoft) with a recently failed Nolkia Windows phone, and still wanting to get into this space, then RIM would be looking very attractive. But why would I buy the company for 3.5 Billion when I can get it for 500 million a few months or year down the road?

      This may indeed be what’s happening. The secure email service and BBM platform is too valuable to let die out like a Nortel. I’m certain somebody will buy up RIM for the services, and so many people still like physical keyboards… MSFT is the perfect buyer IMO.

      Just a wild guess. ;)

      Cheers

  14. TiredWorking says:

    Hey Ninja,

    Keep up the good work.

    I’m curious as to what you think about RIM at these prices. It closed at 6.87 today.

    • Hey TiredWorking, you know its a great question! and the answer is NO do not buy. RIM is looking to be the value-trap that Nortel also was during the dot com bubble, and not a value play.

      I have a BlackBerry and I like it – I like the keyboard and I don’t like the iPhone much. Many people I know like BlackBerry, and so do 18 year olds who love it for texting and BBM. I really don’t want to move to Android or iPhone when my contract renews, and especially as I like BlackBerry Email Service. The problems at RIM are not becuase of the device or service – becuase not everyone wants an iPhone.

      But here’s the problem. Mr Heins is no turn around CEO, and he has no idea how to turn around the company either – he’s a listless and drifitng captain without a strong vision. He is waffling at a time when the company needs strong leadership.

      All RIM needed to do was two things, and they messed up on each account: (1) scrap the playbook, and (2) just focus on two BlackBerries, a curve for the younger consumer market, and a bold for the business crowd. Simple and done.Instead they have focussed on too many BlackBerry models, creating a nightmare for app and theme developers.

      Unless RIM gets a new CEO other than Thorston Heins, this company is going into the ground in my opinion.

      Cheers

      • TiredWorking says:

        Thanks for your opinion.

        That means that you disregard the supposed BB10, new playbook launch and cost cutting measures. I’m a Blackberry user as well and it does all I need it to do so I never even held an Iphone.

        I do know 90% of my friends in the Caribbean and Africa all support Blackberry. It’s #1 in those parts and many other places in the world still.
        I’ll be watching the cash burn over the next few quarters.
        It’s very difficult to turn around a company from these depths, especially when customers are walking away daily.

        Apple shares traded around $10 before they managed to turn the ship around not so many moons ago. Many people then wrote them off for dead too.

        Maybe the story is not over yet…..maybe?

        • Nice comparison to AAPL. ;) Maybe and lets hope so!

          Cheers

          • I’ll share my thought … This is more of a mobile and first to market marketing strategy though.

            I don’t see mobile as just a phone anymore but as a smart phone which implies that it needs apps. Apple was first to market with an efficient ecosystem to entice developers to develop for it. This has made its way on to Android and it is now on PCs and many other platforms.

            It’s also worth noting that Android install based is greater than the iPhone and it even has better hardware but that doesn’t change that the iPhone app market is more profitable and that’s what developers look at. Even if RIM had a better phone and a better OS, they have no market and first to market on an innovation is key (remember VHS vs BETA or even Blue Ray vs HDVDV … better doesn’t always win).

            Also worth noting that MSFT is hungry for that market and want to have its mobile device be an extension of the Xbox brand and the Metro style is a path in that direction with Window 8 providing it as a default. That’s a stiff competitor to RIM …

            RIM was setup as a grower and researcher but it cost money and if they aren’t going to bring in the same amount of cash, the company has to adjust and reinvent itself. All other competitors have major hardware to link multiple devices or a free platform in Android.

            Aside from the keyboard and email, RIM doesn’t seem to have anything :( They need a major innovation from my point of view or do what IBM did (go from hardware provider to a service provider).

            • And I’ll share my thoughts next week with a detailed post and follow-up. :)

              “Aside from the keyboard and email, RIM doesn’t seem to have anything…”

              Wrong! and I’ll explain why. But it won’t be the RIM we know and see today.

              Cheers

  15. Philbert at this point, I assume you would be selling at such a loss – that it might make sense to hold and wait. If there is any potential for a takeover, then its worth holding just for that reason alone. I can’t advise you – but that is what I would do. ;)

    If I was a big company (like Miscrosoft) with a recently failed Nolkia Windows phone, and still wanting to get into this space, then RIM would be looking very attractive. But why would I buy the company for 3.5 Billion when I can get it for 500 million a few months or year down the road?

    This may indeed be what’s happening. The secure email service and BBM platform is too valuable to let die out like a Nortel. I’m certain somebody will buy up RIM for the services, and so many people still like physical keyboards… MSFT is the perfect buyer IMO.

    Just a wild guess. ;)

    Cheers

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