Research In Motion Ltd. (RIMM) is in a complete mess. The company’s revenue and net income plunged in the third quarter of fiscal 2012, future financial outlook is grim, and the stock price is at its trough. We believe the company has considered its legacy BlackBerry OS as a cash cow for a long time and failed to understand how the consumer tastes are changing for the next-generation smartphones. So far, the company has failed to provide any specific time frame when its free fall will ultimately end and is continuously delaying the launch of its much hyped QNX based phones.
Despite these negatives, we find three rays of hope for Research In Motion: (1) the company is still earning profit (2) growing international businesses and (3) an effective patent portfolio. We are doubtful whether a turnaround will happen or not, which will solely depend upon proper management execution. At present, we reiterate our Neutral recommendation on the stock.
Research In Motion is facing severe problems from several fronts. The company is continuously delaying its new products introduction, facing an ever increasing competitive landscape, a stagnant product portfolio, and an unfavorable product mix. The nightmare of Research In Motion continues ever since Apple’s iPhone hit the market. The situation aggravated once Google launched its Android software and several handset manufacturers adopted that operating system. We believe management has so far failed to do a proper research, which can place the company’s motion forward. We are still waiting for a game changing product (either software innovation or hardware innovation) ,which can turn the tide in favor of Research In Motion.
On the other side, despite facing significant erosion of market share in the last 3 years, Research In Motion is still a profit making company. This implies that the company is accumulating cash for whatever it sells whereas several other smartphone manufacturers such as Motorola Mobility Holdings Inc. (MMI) and Nokia Corp. (NOK) are losing money. The company initiated a headcount reduction in order to optimize its cost structure and has started benefiting from this restructuring process.
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