Thursday, June 23, 2011

Research in Motion (TSE: RIM) Decline Way Overblown. Should You Buy RIM Before it is Taken-Over?

I must admit, as a recent owner of Research in Motion, I am a little biased in saying that the recent sell-off in the stock is overblown. Down from over $60 per share in March of 2011, to the high $20's, on the announcement of slower growth and late product development is more than a bit much. Of course, there are many bears in the proverbial Wall Street woods that claim Research in Motion is about to go the way of Palm and other early device makers, but this is not just another dog stock with terrible fleas.

The usual story for defunct technology companies is that they begin to burn cash quicker than they can make it. To be sure, many even have to borrow hordes of cash from investors and banks just to stay current with new developments and recent trends. RIM does not fit this bill. It has over $2 billion of cash in the bank, and it earned almost $700 million in the last quarter alone! To be sure, growth is slowing... but that does not mean everyone should just abandon ship and find the nearest lifeboat. They are at the end of a product cycle and it will take some time for them to release and market their new QNX operating system products, like those similar to the Playbook.

The other reason, which is clearly starting to gain traction, is that investors are starting to really smell a takeover target. When this happens, a floor starts to be created in the price of a stock. According to the CBC, potential "suitors mentioned in the past have included the likes of Microsoft, Oracle, Cisco, IBM and Hewlett-Packard." Each of these companies has deep pockets that could gobble up and enjoy RIM for breakfast. In addition, there are many great technology companies that would love to seize all of RIM's technology in one fell swoop. Why spend billions inventing your own systems when RIM's could be had for much less... plus you get the cash in their bank account remember. Most estimate the cost of buying all of RIM at around $20 billion. This is a large number, but not that large for the technology giants of the world's stock markets.

Happy Investing and be sure to give RIM a look in the near future.

Here is some additional information on this story:


  1. So are you saying the only way to profit from owning RIM at this point is if the company receives a take-over bid? Or do you suppose it can be turned around by the current co-CEOs? The stock looks cheap compared to its highs, but there's a big difference between poor earnings and record-breaking earnings. With product recalls and delays, it's been having some tough times in the North American markets. Do you think it can become competitive again in this market, or do you think its international operations will be the key driver towards higher profitability going forward?

  2. I am not quite saying that. One should NEVER buy a company on take-over rumours alone, it is too dangerous. Because then if the take-over does not materialize the stock would get crushed. With RIM, it currently has a perfectly viable and profitable business, especially with growth overseas. It definitely can become competitive. The new operating system is fantastic, and they have been too slow placing it on new devices. When they begin releasing a slew of new devices all running on the new system, the company will re-gain some of its status as an innovator. It has been awhile since they have had a number of new mobile devices... and by that I mean legitimately new, not just changing the name and shape. As for the "co-CEO's," they have not exactly performed too badly on an earnings basis. Will they be replaced? Who knows. But I think that they could bring in some fresh blood without replacing the CEOs.