There was a time that Research in Motion (RIMM) was the darling of Wall Street. The products that they sold were on the leading edge of technology; interactive, life and business simplifying, and a product that quite literally had an “addictive” nature that produced uncanny sales and loyalty from their customers. Their signature SKU, the Blackberry Phone, was infamously dubbed the “Crack-berry” for that immediate comparison to the most addictive drug on the streets.
Well times have certainly changed for the once dominant wireless communication company. Over the last four years, RIMM has seen a literal disappearance of market capitalization to the tune of 84%, going from $54.81B in 2008 to $8.79B to date. While their revenue growth year-over-year has been steady since 2009, along with steady EPS growth, and net income growth, RIMM has incurred increasing debt, shrinking cash flows, and most importantly the absolute onslaught of their competitors with newer, better, and more customer pleasing products developed by Google (GOOG) and Apple (AAPL) most specifically.
Adding to RIMM’s woes will be a half billion dollars in charges related to two major failures this fiscal year. First was the dramatic overproduction of the “Playbook” tablet (est. loss $485M). The second related to the prolonged service outage in October ’11 that will undoubtedly result in numerous lawsuits (est. loss $15-20M). And when CEO, Mike Lazaridis, was asked about his thoughts on the most current earnings reports, he showed an audacious denial of reality by stating:
“RIMM is committed to the Blackberry Playbook and believes the tablet market is still in its infancy…early results from recent Playbook promotions indicate a significant increase in demand across most channels.” (TechCrunch, “RIM To Miss Earnings Goals After Half a Billion in Charges”,12/4/11)
And if all of that weren’t enough to make you scratch your head, according to an article published in November by BusinessWeek, for the first time in nine years, RIMM’S stock price fell below it’s book value.
“So, what did RIMM do?” to get themselves into this mess becomes the most obvious question. However, analyzing what RIMM didn’t do and what their competitors did do reveals the true answer. One only needs to compare RIMM’s financials with that of its most formidable competitors, Apple, Inc.…
Created in 1976 by the legendary Steve Jobs, Apple rose to prominent status quickly in the ‘80’s. The iconic Macintosh was the precursor to home computing of the future like no other technological innovation of the 20th century. But just as quickly as it rose, Apple fell to the double-edged sword that helped create it; Jobs himself. He was ousted by the other directors because of his unpleasant demeanor, insistence on everything having to be done his way, and just a little bit of ego.
Little did they know, Jobs’ personality and paradigm changing vision for personalized technology was to become the actual heartbeat and core foundation of Apple and its coming success. And until his return in ’96, Apple’s growth, market share, R&D, and profits languished mercilessly. Once back in the captain’s chair, Jobs spearheaded products like the iPod, iPhone, iMac, Macbook, iPad, and transformed personal computing with the advent of the touchscreen on all devices. And the results have been nothing short of Wall Street gold since his return.
According to the financial data compared to RIMM, Apple has become the 21st century’s reincarnation of the dominance that RIMM once garnered at the end of the 20th century. Since 2009, Apple’s sales have grown 157%, their market capitalization has increased 120%, their debt ratio and working capital have decreased significantly, their EPS has more than tripled and their book value per share has almost tripled! And if all of that weren’t enough to impress you, the media widely reported how Apple had more cash on hand than the United States government early this summer!
However, not all of Apple’s success has been directly attributed to the wireless communication devices that directly compete with RIMM’s products for a fair evaluation. Of the $108.2B in revenue for their last reporting period, roughly $70.8B (65%) of those sales can be attributed to the iPhone and iPad, while the other $37B (35%) were sales of their desktop and portable computer devices where RIMM does not compete. Even so, Apple has dominated the wireless industry of late and their current revenues dwarf RIMM’s best year ever of revenue, computers aside. And once Verizon became licensed to sell the iPhone on February 10th of this year, after having had an exclusive agreement with AT&T since it’s launch, their sales have taken off even more dramatically.
All of that being said, I find it interesting that less than 1% of Apple’s insiders own Apple stock, where RIMM’s insiders own 11% of their stock. And as of December 2 of this year, RIMM’s P/E of 3.06 compared to Apple’s 14.08 makes RIMM possibly more attractive as a buy for nothing other than a takeover scenario. And now that Steve Jobs has passed away and Timothy Cook has taken the reigns, are the innovative technological breakthroughs going to dry up for Apple without their spiritual leader? Or become less than spectacularly popular like every single launched product of the last ten years for Apple? I guess we will all see soon. But if I were a betting man, I would put my money on Apple, even with a new CEO…
Until next time…
Jason Ritchason -President/CEO