[01itr]

Olive: A leaner, more focused RIM

I'm glad there is some good news coming out today. I like the way this guy thinks

[kevinnugent]

I agree, he seems very sensible.



For the people adverse to clicking links:

Olive: A leaner, more focused RIM
Published On Mon Jul 25 2011EmailPrint(0) Rss ArticleComments (0)
By David Olive
Business Columnist
Related
David Olive's blog
It’s not too early to make a comeback call on Research in Motion Ltd., which yesterday seemed to confirm its sea of woes by announcing a workforce cut of 11 per cent, or 2,000 employees — far above the number expected since layoff fears began to grow earlier this year with RIM profit warnings.

Against a relatively sudden wave of new rivals, RIM still clings to a 17 per cent share of the global smartphone market. The company is debt-free and sitting on more than $2 billion in cash to finance new and improved products.

RIM outperforms mighty Apple Inc. in the intensity of its R&D spending. Apple’s $1.8 billion in R&D outlays last year, spread across several sectors including the iMac, iPod, iPhone, iPad and the retail store iTunes — equalled just 2.7 per cent of total revenues.

RIM’s $1.4 billion in R&D expenditures dedicated entirely to mobility products equalled 6.8 per cent of total sales.

RIM outperforms Apple in return on equity (41.4 per cent to 35.3 per cent) and is surprisingly close in net profit margin (17.1 per cent to 21.8 per cent). Given the current must-have status of Apple products, the Cupertino, Calif. company can for now get away with overpricing its products. That won’t last beyond the novelty effect that the likes of Palm Inc. once enjoyed.

Finally, RIM trades at a “living-dead” multiple of 4.2, as if its cash horde and huge installed base of high-income, high-profit margin customers concentrated in the “mission critical” sectors of industry and politics didn’t exist. Apple trades at a lofty 15.8 times earnings. If RIM stock traded at an unglamorous but realistic multiple of 10, it would be a $72 stock, not the $26.27 it currently trades at.

There are reasons to be concerned about RIM, obviously. But you wonder how many of them are fundamental and how many derive from “confirmation bias.” That’s the tendency of analysts and industry critics who believe RIM’s halcyon days are long past to focus mostly negative signs confirming their current view of RIM.

Opacity goes with the territory in tech, and for competitive reasons we simply can’t know what aces RIM might have up its sleeve. Co-CEOs Mike Lazardis and Jim Balsille vow that by year’s-end the Waterloo maker of the ironic BlackBerry will have made the biggest new-product launch of its history.

What that will be is strictly a matter of industry speculation. But we do know that of RIM’s 14 recently, quietly acquisitions, QNX Software will have the most significant positive impact.

With QNX, RIM obtained a vastly superior operating system than its aging BlackBerry OS. Now getting its test run in the PlayBook tablet launched in April, the QNX OS is destined to replace the BlackBerry OS in all of the Waterloo, Ont.-based firm’s products.

That alone will address RIM’s app-shortage issues (compared especially with Apple). Yet RIM also retains its high card of mobile security, in which it remains unmatched.

For many mobility users, traumatized by recent privacy violations at the likes of Apple, Amazon and Sony, RIM’s sector-leading emphasis on privacy protection is the ultimate killer app.

Fearing the worst for Canada’s default R&D champion, now that Nortel Networks Corp. is gone, is inevitable given the multitude of rivals RIM now contends with.

And RIM has shed 82 per cent of its peak $77-billion market cap of mid 2008. RIM is now worth just under $14 billion. Then again, the far larger and more diversified Nokia Corp. has seen its stock crater by more than 71 per cent over the past decade, even though the Finnish company still commands the world’s largest market share in cellphones.

Investor sentiment in tech is notoriously faddish. The media-driven excitement over iPhones and iPads from Apple — the industry player most skilful at generating free publicity — has created a momentum around Apple that is impossible to sustain and attracts lowball rivals into the sector.

RIM still has largely to itself the sweet spot of high-price, high quality, high security products that command a premium price.

RIM has stumbled, to be sure, by believing too heavily in its prowess after a tripling in revenues and more than doubling in profits in the past few years. The PlayBook was pushed out hastily in April to poor reviews. Second sober thought would have recommended the launch first of a sturdier cellphone-equipped model playing to RIM’s longtime strength with telecom carriers.

The humbling of RIM by Apple and rivals using Google’s Android operating system, capped by this year’s dismal debut in tablets, brought about yesterday’s unhappy announcement. But RIM’s traditional focus on products rather than its stock performance augurs well, ironically enough, for its stock and more important its ability to conceive game-changing products.

[Economist101]

"RIM outperforms mighty Apple Inc. in the intensity of its R&D spending. Apple’s $1.8 billion in R&D outlays last year, spread across several sectors including the iMac, iPod, iPhone, iPad and the retail store iTunes — equalled just 2.7 per cent of total revenues.

RIM’s $1.4 billion in R&D expenditures dedicated entirely to mobility products equalled 6.8 per cent of total sales."

Apparently the author failed to realize that the above stat is not favorable to RIM.

[kevinnugent]

"RIM outperforms mighty Apple Inc. in the intensity of its R&D spending. Apple�s $1.8 billion in R&D outlays last year, spread across several sectors including the iMac, iPod, iPhone, iPad and the retail store iTunes � equalled just 2.7 per cent of total revenues.

RIM�s $1.4 billion in R&D expenditures dedicated entirely to mobility products equalled 6.8 per cent of total sales."

Apparently the author failed to realize that the above stat is not favorable to RIM.

Do you think the QNX and Playbook transition would have contributed to a larger than normal R&D spend, or is this figure normal?

[1812dave]

I have to disagree with David's (the author) comment,"Given the current must-have status of Apple products, the Cupertino, Calif. company can for now get away with overpricing its products. That won’t last beyond the novelty effect that the likes of Palm Inc. once enjoyed. "

He says, "for now..". ah, it's been that way FOREVER, with Apple products. People love em, even when one doesn't get the biggest bang for the buck--what one gets is "cachet" and "styling", but not raw power (as compared to non-Apple products in the same segment). Even their ipods (and I have 7 of them) don't sound as good as some of the competitor's models, but that doesn't keep Apple from owning that market.

Apple's marketing is not a "novelty", in it's effectiveness. I have to give the devil (Jobs) his due. He's a brilliant marketeer.

[Economist101]

Do you think the QNX and Playbook transition would have contributed to a larger than normal R&D spend, or is this figure normal?

As a % of revenue, it's right in line with prior years with a slight upward trend (6.8% quoted in the article, with 6.5 and 6.2% in the two prior years). As for the PlayBook, it certainly would increase R&D spending as an absolute value, but RIM's revenue was up also, so the change as a percentage of revenue is relatively small.

[kevinnugent]

Would acquisitions be bundled in with R&D? In previous years I can't imagine what they spent that amount of money on. I'm not trying to be funny, but that much money for the last 4-5 years for just their phones?

[Economist101]

Acquisitions are treated as investments; R&D is treated as an expense. As a result, R&D does not include actual acquisition costs.

[ekafara]

I wonder what they have come up with since putting that much money into R&D

Posted from my CrackBerry at wapforums.crackberry.com

[01itr]

I wonder what they have come up with since putting that much money into R&D

RIM to Launch 7 New BlackBerrys with OS 7

[01itr]

I'd hope that is NOT the result of the bulk of their R&D work.

A better, more preferable answer would the Playbook, the scrapped 10" Playbook, and the continued work on developing QNX as a viable OS for handhelds.

This makes more sense, I don't know why I haven't thought of that. Haven't been to Tims yet today