iPhone 5 Will be the Nail in the Blackberry Coffin

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.

**********************************************************************************
Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.

Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
**********************************************************************************

• Delicious
• Share