1/19/2010
By Brian Sozzi, Research Analyst

Far be it from little ole me to spell the demise of venerable Blackberry maker Research in Motion (RIMM).  I am one of the 75 million worldwide who have plunked down a fair amount of money to become immersed in a portal of technological wizardry.  For those of you reading this that may be curious as to what I am referencing in a "portal of technological wizardry", it means non-stop news refreshes from downloaded applications (or "apps" for the hipster crowd), social media updates (who doesn't want to know when Susie Q. just finished a batch of muffins!), and insight into weather conditions by the hour.  And, oh, let's not forget the reason why Blackberry has received the moniker "Crackberry", the ability to craft an email with relative ease.

There is no doubt in this analyst's highly critical mind that life has become considerably smoother since I inked a Blackberry contract back in 2005.  I now wake up at 3:45 am and scan the global markets on the nifty Bloomberg app, and then close to 20 hours later read an article about government run healthcare through the Thomson Reuters app.  Total sleep time, approximately three hours.  Expansion of critical thinking capabilities, priceless (well not totally priceless as I pay $100 a month for service and could be doing other things that drive a lower heart rate).

I will leave alone the debate as to whether access to the wealth of information provided by smartpphones is destroying human creativity and general focus of the mind.  Instead, I want to delve into a thought that has been eating at me in those three hours of sleep I snag daily.  Is Research in Motion falling behind the significant technological ramp we are seeing in the smartphone niche of the mobile handset market?  In a U.S. market where 2010 sales are estimated to reach $17 billion, and obvious potential of international domains, does it even matter that Research in Motion's devices failed to receive a side by side comparison (Apple's iPhone claimed the spot) to the Nexus One from Google (GOOG) when reviewed by The Wall Street Journal's Walter Mossberg?  Is it troublesome to the shareholder base that Research in Motion is offering only modest updates to its best-selling models (bye-bye trackball, hello "optical touchpad") instead of overhauling the Blackberry's aging browser and user interface?  The company's foray into touch screen smartphones, via the Storm, was a severe letdown, isn't this also worrisome?  Why aren't software developers devoting more time to Research in Motion's "App World" in spite of an expanding user base (App World boasts 18,000 apps as opposed to iTunes which has in excess of 100,000)?

In my opinion, all these items are causes for alarm even in light of Research in Motion's blowout fiscal third quarter announced back in December.  The way I view the matter, individuals and corporations have been long willing to pay a monthly service premium to gain access to Research in Motion's free flowing email system.  It has been a competitive advantage.  But is it a durable competitive advantage?  The latest round of smartphones have reasonable email functionality (my iPod Touch gets emails when connected to WiFi; it works quite well), perhaps sparking an internal debate.  Do I trade in my Blackberry for the ok email system and the availability of tons of killer apps on other smartphones, apps that could improve my quality of life?  Undoubtedly, this is a question I have myself been pondering as of late, and surely other Blackberry users can relate.

Research in Motion shares have declined 56% from their all-time high achieved in June 2008.  On the other hand, Apple shares are at an all-time high and Google shares are staging an impressive recovery.  This diversion in performance is indeed suggesting that a company who has grown revenue and earnings per share at three-year CAGRs of 53% and 44%, respectively, has missed a beat.  Many of the concerns outlined in this piece may be forgotten temporarily as Research in Motion appears set to release a meaningfully enhanced web browser later this year.  Or, the issuance may be too little too late.  Significant price pressure brought about by arguably superior smartphones from handset vendors such as Google, Motorola (MOT), Samsung, LG Electronics, Apple (AAPL), HTC, and Sony Ericsson may take precedent, however, in the Research in Motion investment thesis. 

We have seen market leaders stumble before (remember Palm?) amid an overreliance on original claims to fame, so we can't exclude Research in Motion being fast tracked to dinosaur status by stronger positioned counterparts.  Just remember you heard it from this Crackberry user first. 

Brian Sozzi
Wall Street Strategies