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Research in Motion had a pretty rough 2011. Starting with the
suspension of their services in India and Saudi Arabia because governments
couldn’t snoop into Blackberry messages, and continuing with a delay in
the release of the copycat Blackberry Playbook, RIM shares have been dealt a
mortal blow, it would appear. From a 52-week high of CA$69.30, to last
week’s close of just above $14, it sure looks like the stock may well
be ready to fall the rest of the way off of the cliff.
Plummeting
marketshare, arrogant and delusional management,
and the runaway success of both Android phones and of course, iPhones, would
appear to have sapped the company’s momentum. Some commentators are
calling a botttom in the market. But I think the
company is closer to a beheading than a ressurection.
Thats because the new iPhone 5 is rumoured
to have a slide-out, tactile keypad. For many Blackberry veterans, the
onscreen keyboard is the main barrier to making the swith
to iPhone. With a tactile keyboard, that barrier is removed, and I think that
will be the straw that breaks the Blackberry’s back.
Short interest
in the stock rose from November 30th’s 37.8 million shares to 42.5
million shares as reported on December 15th. Analyst downgrades outnumber
positive ratings by a factor of 7. Company-issued profit warnings, the layoff
of more than 2,000 employees, and no technological innovations on the horizon
would all seem to point to a single exit strategy for RIMM shareholders: A
buyout.
But the
problem with that is the same as the problem with the company in 2011:
Management. Mike Lazaridis and Jim Balsillie, the two founders and co-chairmen of the
company, own a combined 10% of the companies
shares, which is why its
been so hard to get rid of them in the first place.
Additionally,
with the shares valued at $7.50 a share in patents, and $12.50 a share in
monthly subscription fees according to Alkesh Shah,
and analyst with Evercore partners, the price tag
is likely going to be in the range of as much as $13 billion. In the current
environment of diminished economic prospects around the world, thats not the kind of investment
that is going to start a stampede.
Both Lazaridis and Balsilie are
intent on retaining control of the company they founded more than 12 years
ago. “It is important for you to know that Mike and I, as two of
RIM’s largest shareholders, understand investor sentiment, and we are
more committed than ever to addressing the issues at hand,” Mr. Balsillie said before announcing that, as a good will
gesture, they had cut their salaries to $1 a year.
Maybe RIM
is going to pull a rabbit out of the proverbial hat, but I doubt it. I think its probably a bit oversold,
given the book value. But at this point, we’re dealing with a
substantial management discount, and if they don’t get out of the way
soon, the value of their 10% holdings may yet go a lot lower.
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