Hot Market or Sitting on Your Hands?

This market sucks.  And that's why I love the markets so much...sometimes they encourage you to go read a long non-business book, play a PopCap.com game, or take a long hike with your kids.

For reading, I've been reading J. M. Barrie's Peter Pan to the kids for bedtime reading.  It's free via the iBook store, and it's a cool un-adapted-for-new-audiences story. For PopCap I'm stuck on Plants vs. Zombies, a delightfully maddening title which can be a source of wasted hours...or a rapid training ground for young minds eager to unknowingly learn the military arts of asset allocation, supply logistics and battlefield strategy (that's how I explain it to the boy's Mom... ;-).  And finally, hiking, well heck, its Summer!

Personally, with the markets, I'm finally in a holding pattern.  No buying, no selling...and it's about time too.  I've been way too "day trader" (though, not really), and not enough Berkshire Hathaway buy-and-hold.  All my options have months before expiration (hopefully that's good), and stocks are locked down to the bare essentials: FB -- I bought in a 43, but kept buying down, so that I'm about even now -- and CROX, which I've considered a long-term holding in a fairly sound globally-based retail gamble.

Now, having said that, I asked my friend what he thought of things - here's what he said:

me:  What's the hottest game in this market? new housing? or sitting on one's hands? :-)
he:  companies that are mainly in u.s. markets that provide dividends.
me:  may I quote you on that for this hot little finance blog I'm helping with? (I won't use names...)
he:  sure
he:  what's the link?
me:  you may have heard of it:  http://swansandcrows.blogspot.com
he:  hmm
he:  i've heard about them somewhere.....

What do you think - are American dividend plays where all the actions at, or housing (as new home sales were up a bit for May), or AAPL (not RIMM), or nothing at all, sitting on your hands? Leave a comment, let us know.

..TS.

RIMMworld

There has been no more pivotal point for RIMM than it faces today.  Way too cliche to even say anything about being on the "rim", Research in Motion stands atop a pile of subscribers, scrambling to retain them with edgy products that're merely playing catchup.  Similarly, I've been in and out of near-term 2012 RIMM Puts trying to play catchup with a market that's been pushing the company down from Mt. Olympus since July of 2008, not allowing the global recovery to (barely) affect RIMM's Belerophonesque plunge.  My catchup plays have been about as eventful as RIMM's ability to combat the AAPL/iOS juggernaut.

As Tamara Rutter reports on Fool.com in "What Blackberry 10 Really Means for RIM" the introduction of the Blackberry 10 at the company's annual partner conference is met with mixed emotions: those stuck in the Triassic with their love of a physical keyboard (guess you can figure the colors I fly) dissed the keyboard-less demon, while AAPL, Samsung and Motorola licked their chops, ready to attack via their respective IP law firms a competitor who may or may not have paid for the relevant technology licenses.  Ms. Rutter points up the historical nature of RIM as "innovative", yet it took them 3 years to produce this tablet phone.  While we can all see the mass of Microsoft's ocean liner that gives seasoned captains the world over the willies in figuring out how to steer the behemoth, RIM's relative tiny size seems like a PT-boat pulling a submerged iceberg (which is probably the combination of their installed base with their proprietary network).

I closed out my Puts today, figuring I'd just take the friggin loss and stop trying to guess what this silly company was gonna do next--therefore didn't jump on the potentially cheap Calls that beckon if the 10 is RIMM's savior.  The touch-screen 10 may save them, but are there content and apps ready to wow the public?  Does their tablet phone have a halo device, ready to serve the function of AAPL's iPhone vis-a-vis the Mac computers?  I truly think that RIMM has bit the dust, is beyond the event horizon, but there are far easier ways to make money than trying to be a Phillip Falcone with RIMM.

..TS.

So what if I called the earnings release

So I called the earnings release.....Yea..Wow....Great....
But, the most important thing is can I repeat that call. It was a mixture of knowing the sentiment and knowing what to ignore. [ or maybe ignorant of what I was suppose to know] Anyways, coming from a left-brained analytical background, I usually want to know everything about a stock before I jump in.

What others' don't know
My approach has always been to figure out what other traders don't know about a stock or special situation. But the lesson here is that traders, at all levels of experience, were watching what they were suppose to be watching. They were following the rules of prudent day/swing trading like they were suppose to.

Don't get me wrong. I'm not advocating that you don't use safe guidelines or rules. But there are different levels of how deeply a trader gets engaged in data and facts. Each level has a self-interest and motivation. Each level has a standard set of best practices learned through experience and knowledge.

Invert the Process
I will paraphrase the adage made famous by Howard Marks, What do I know that other trader don't?
Invert the thinking process into the following. What knowledge do others have that they should be ignoring?

At a different level, what knowledge exists that other trader's are totally ignorant of?

Regardless of experience, the other half of the world that is right-brained and guided by intuition may be looking at something from a completely different point of view.

Roger Martin Video

About this video

Roger Martin, a leading proponent of design thinking in business, makes the case that we can understand innovation through a new model of how businesses advance knowledge over time, and that businesses fail to innovate when they show greater concern for producing reliable (predictable and reproducible) outcomes than valid ones that actually meet objectives. Martin argues that businesses can do a better job at innovating—and advancing knowledge—if they embrace design thinking. Using examples such as Procter & Gamble, RIM (BlackBerry) and Cirque du Soleil, he examines how companies transform themselves into successful design-thinking organizations.

Research in Motion's services and software revenue

The new CEO Hines is banking on the success of its next BlackBerry 10 operating system platform to boost smartphone, mobile app development and tablet sales. What happens if it doesn't prompt a massive response? What if it's not a technological break-through. What if it only gets Research In Motion(RIMM) back to where other competitors' products match-up?

Is there a way to break-down how much RIM's business relies on the hardware? Let's begin totaling a dollar value with Research In Motion's patents. In September 2011, one estimate was that they are worth $1B counting $1.5B net cash and $21 per share.

Analyst Peter Misek believes RIM's patents are " relatively weak," with most in security rather than in wireless.

"We believe the liquidation value of RIM's patents is only ~$2.5B. We believe the security patents are worth approximately $500M, RIM’s wireless patents are worth approximately $1.2B ($400M LTE plus 3G, etc.), and we add the $770M worth of patents acquired from Nortel. Combining the various patents, we arrive at the patent portfolio value of approximately $2.5B."

Misek notes that even though the patents may be worth $2.5 billion, keeping an on-going handset business, RIM's patent monetization likely caps out at approximately $1 billion.

The firm sees a "cash cow salvage value" of $21 per share. Calculation: net cash ~$1.5B + patents ~$1B - restructuring ~$700M + subscription business.

Today the earnings and market price has gone down since September, but the cash & equivalent has gone up. I have not seen how much revenue is generated by the Enterprise portion of their products; However, if you eliminated the whole Hardware Division, RIM receives $3.5B in Services and Software revenue.  Caution: There may be some dependencies in those Services & Software dollars not accounted for. This is just a back-of-the-envelope calculation.

Add in $0 total debt and even stripped down, RIM seems undervalued. This morning RIM's market cap was ~$6.95B and the price hovers around $13.00 per share.

RIMM seeking advise on strategic options

There are reports out of Bloomberg News  that Research in Motion is seeking help from a International Bank and a Canadian Bank on what are its viable strategic options.

From the Bloomberg News Report:

"A decision to work with at least one bank could come in the next few days, said one of the people, who asked to remain anonymous because the deliberations are private. RIM would prefer an agreement to license its mobile-phone software, and its next choice is a strategic investment, one person said. RIM doesn’t plan to sell itself, the person said.

RIM spokeswoman Tenille Kennedy declined to comment, citing company policy."

"RIM will redouble efforts to attract business customers while reviewing options, such as licensing, partnerships, joint ventures and other ways to “leverage” assets. Other options include finding ways to wring more money from its messaging service and patents portfolio, which are its most valuable assets, the people said."

The Toronto Star reports :

But analyst Kevin Dede of Auriga USA didn’t expect a firm step toward a sale until much later this year at the earliest.

“It surprises me, because I really thought they’d wait and see how the BB10 devices did before they seriously considered a sale. I think some people had overplayed Heins’ remarks about a sale,” said Dede referring to BlackBerry phones using RIM’s long-awaited new operating system. RIM has said that BB10 devices are expected to launch late in the second quarter.

The second quarter ends around the last week in August. Either way, this is a long deliberate process. The stock price will be affected by many rumors and set backs.

Research in Motion's Inventory Adjustments

Research in Motion(RIMM) has at least one more adjustment to make to their inventory. The average earnings consensus is .45 cents for the current quarter ending in May. The whisper number as of 4/14/2012 is .43 cents. No official guidance was given by the company.

No adjustments to estimates have been made in the last 30 days.
However, I don't know if all the news is priced into that estimate. There is  news that the Playbook is finally selling better since the 2.0 OS upgrade and price cuts.  RIMM has finally settled with the Indian Government over security issues. It cut prices in India in a move to boost sales in the world's second-biggest mobile phone market.

The adjustment to inventory will hinge on how much inventory needs to be written-off with the reduction of phones from the existing 7 brands to the proposed 3 or 4 brands. I am hoping we find out which models at the BlackBerry World Event starting May 1st.

[Edit: Wait,just found it - 3 families - Bold, Torch & Curve ]

BlackBerry Bold 9900 and 9930 
BlackBerry Bold 9790
BlackBerry Torch 9810
All-Touch BlackBerry Torch 9850 and 9860
BlackBerry Curve 9350/9360/9370
All-Touch BlackBerry Curve 9380 Smartphone 

Research in Motion Mobile Fusion

Research in Motion(RIMM) is well known in the Enterprise segment of the smartphone mobile device segment.  Their flagship BlackBerry brand uses a  proprietary browser and operating system to insure a secure, unfragmented code. However, the smartphone segment is changing.

Research in Motion(RIMM) has just released a product that is in response to the new trend in the smartphone industry.  This allows IT personnel, in conjunction with the Enterprise Business Server (BES), to provide messaging, email, virtual network and browsing for any enterprise. { No more IT banning of browser software or apps }. Ever since the rise in Android and iPhone devices, the user has not been tied to a platform or operating system, and can pick and choose the features she wants. The customers and users in this industry have evolved into the "bring-your-own-device"  or "BYOD" movement.

The newly released product is the Mobile Fusion device management product. Mobile Fusion is described on the Blackberry website as:

BlackBerry® Mobile Fusion helps make managing mobile devices faster, easier and more organized than ever before. From a single, web-based interface, provision, audit and protect mobile devices, including BlackBerry smartphones1, BlackBerry® PlayBook™ tablets and devices that use iOS®2 and Android™3 operating systems.

With this product customers can buy any phone they want and it can be managed by the  enterprise. An estimate of enterprises global spending on fixed and mobile communications services approach $425 billion annually.


The new barrier to entry is now the carrier and its associated sales channel.  
Now prime real-estate shelf space and exclusivity in the channel outlet will determine success of a phone device.


Existing Competitors in the Mobile Device Management (MDM)
Other than BlackBerry's BES suite there are others in this space.
Read MDM wiki for more or do a search on Mobile Device Management

Two examples are highlighted below:
MobileIron
Tangoe, Inc. recent IPO (TNGO)

Fake it till you Make it

As a value investor we are always looking for a reflection  of the quality of management. Do the executives have the shareholders' interest in mind when they make decisions? I am really intrigued by what is happening at Research in Motion (RIMM). A new CEO, Thorsten Heins, has recently taken the reins after being hand-picked by the two original co-founders of the technology company. The two co-founders, originally acting as co-CEO, moved to the board of directors.

The new directive from Mr. Heins seems confusing. If you listen to the latest conference call, the audience can seek whatever message their viewpoint supports. Of course, Mr. Heins has only been on the job for 10 weeks now. So his insistence that he is reviewing everything that would be in the best interest of the company has wisdom. He does seem to have cleaned house and forced several top executive to depart. One of the co-founders, Jim Balsillie will retire, either by force or design.
I hope Mr. Heins has the fortitude to carry-through the needed changes.

Research in Motion new directive in his words are {or at least my interpretation, and call me on it if I'm wrong}

• BlackBerry Enterprise Service Business - Enterprise services
• Prosumer market - which is characterized by users who use the device for personal and business
• Consumer market - "bring your own device/phone" end user market

No, can't differentiate their new strategy from that..... Let's try to differentiate by revenue then:

• Services
• Software
• Hardware
• Other

{my interpretation, and call me on it if I'm wrong}
Mr Heins was talking about reducing the broad array of phones from the 7 new BlackBerry Smartphones to 3 or 4. He was talking about a possibility of licensing the software,  reducing or eliminating the hardware & accessories, repair, maintenance and warranty programs to a strategic partner. Maybe a joint venture? That's a big chunk of the current revenue. It will be interesting to see the evolution in the next 6 months and in the release of BB10.

Here is the elevator speech from the rim website:

RIM is the leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and service that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to information, including email, voice, instant messaging, short message services(SMS), internet and intranet-based application and browsing. RIM technology also enables a broad array of third party developers and manufacturers to enhance their products and services through software development kits, wireless connectivity to data and third-party support programs.

What are RIM's Competitor's Strategy?
A quick glance at the top competitors strategies in the field:
Apple - Hardware & accessories, Software for the consumer; Just branching out to the Enterprise
Google - Software for the consumer - (Android )
Windows/Nokia - Hardware Partnership and Software (Window 7)

RIM - what is next?
Mr Heins was heard to say in the conference call:

"with BB10 we are getting ready not just for the smartphone, ...getting ready for mobile platform for the next decade"

A second look at Research in Motion

With all the apple news lately, what has Research In Motion (RIMM) been up to?

Here is the latest ComScore Report for the last 3 months. It shows that RIMM is still losing market share in subscribers but as an OEM device manufacturer has stabilized.

Maybe they have already ceded a segment of the Smartphone platform market share. Maybe they know what they're doing with the QNX acquisition. How big is the QNX CAR Application Platform market segment?

A quick tour of the QNX CAR 2 application platform

from the QNX community blog:



If year-over-year earnings could stabilize the bleeding and bad press would cease.
Research in Motion(RIMM) will announce year-end and fourth quarter fiscal 2012 results on March 29, 2012.

Patents Trump Products

Google's bid to purchase Motorola Mobility is a clear shot across Apple's bow.  While on the face of it Google may be seeking to marshall forces in the Android smartphone device arena, "What Google likely wants from the acquisition is Motorola's trove of more than 17,000 patents on phone technology. Google recently lost out" in Apple's group buy of Nortel patents...that won't happen again.

IMHO, however, I think Google will only succeed beyond Apple if they take a page from Apple's book and innovate ahead of the market.  Time will see if anybody can out-Apple Apple.

Unless they tell us otherwise, I think RIMM, NOK and Samsung's collective geese are cooked. Their patent portfolios (and Samsung's flash & screen production capabilities) are going forward more valuable than their products.  They similarly need to out-Apple Apple... but don't bet on it.

..TS.

Rimm is fair value play

I am very intrigued by the assumptions in the current market that Google's android and Apple's Iphone are going to monopolize the smart phone sector.

Research in Motion (RIMM) has fallen quit a bit lately. Their fair value target is $50.92, using Benjamin Graham's magic formula.

In the news today, RIMM is having their annual meeting to determine whether to replace the current chairmen & co-CEO's, Jim Balsillie and Mike Lazaridis.

$WGO Fell Off the $RIMM

[guest post by TS]

The only reason to include $RIMM and $WGO in the same blog title is to highlight their earnings woes reported Thursday. RIMM, the former champion of the smartphone, has been cored by both Apple and Google.  Winnebago, maker of big ticket RV's, is merely a victim of the economy.

Somebody is playing Winnebago in the options market.  Yesterday's (or just recent?) volume in $10 Jul 11 Calls was some 2000 contracts, and in the $7.50 Jul 11 puts some 1000.

My view on Winnebago is it represents the bottoming of the RV/manufactured housing market.  The recession did a Lehman on Fleetwood Industries, and WGO is feeling the heat (or cold?) through way depressed sales.  But, as jobs and housing creep back up, expect to see great things from WGO (at least from the current lows).  Check out Winnebago's balance sheet - quite healthy (though perhaps cashflow ain't what it was).

..TS.