Once a leader in what would become a mobile revolution with
the introduction of its BlackBerry smart phone, now crowded out
of the market by bigger, faster, more innovative companies,
Research In Motion (
)'s stock price has ridden a rollercoaster over the past five
years and become an object of infatuation by market commentators
and big investors - not least, the "Canadian
. This week's earnings report and the launch of its new product,
the BlackBerry 10, will prove critical for the future of the
company and Watsa's stake in it.
Over the past five years, Research In Motion's stock price
collapsed 91%, though it has tried to reverse its business
data by GuruFocus.com
In the first quarter of 2008, RIM enjoyed a 44.5% share of the
U.S. mobile smart phone market. Apple (
), which released its first iPhone in June 2007, already held
28%, according to Canalys Research.
The launch of the iPhone was immediately disruptive for the
space. "When you consider that it launched part way through the
year, with limited operator and country coverage, and essentially
just one product, Apple has shown very clearly that it can make a
difference and has sent a wakeup call to the market leaders,"
said Pete Cunningham, Canalys senior analyst.
"A broad, continually refreshed portfolio is needed to retain and
grow share in this dynamic market," he added. "This race is a
marathon, but you pretty much have to sprint every lap."
In the third quarter of 2012, the same research firm found
) cornering the worldwide market lead for the third straight
quarter with a 32% share, followed by Apple with 15.5%, Sony (
) with 4.5%, HTC with 4.8%, and RIM in last place with 4.2% -- a
38% decline quarter over quarter.
Prem Watsa began building a position in the third quarter of 2010
when the stock traded for $50 per share on average. He continued
adding as the price continued falling. His largest buy took place
in the third quarter of 2012 - he purchased more than 25 million
shares at $7 per share.
Fairfax now has a lot riding on the RIM's comeback as the
position equals a 9.89% stake in the company, and a full 21% of
their investment portfolio.
Unfortunately, Research In Motion's third quarter results were
mixed and injected volatility into the stock.
RIM announced a 47% year-over-year decline in revenue to $2.7
billion. Net income was $14 million, compared to $265 million a
year previously. The company also bolstered its cash base by $600
million to $2.9 billion.
Earnings were better than expected, as the company forecast a
loss last quarter due to a transition to its next generation of
BlackBerry and the completion of its cost-reduction plan. Many
investors, however, appeared more concerned with the decline in
its BlackBerry subscriber base to 79 million users, from 80
million in the second quarter. RIM's share price has dropped 21%
since the earnings results announcement.
But Watsa has a more far-sighted and comprehensive view of the
company. In an interview with GuruFocus, he cited one big reason:
"They have lots of cash, huge cash flows," he said.
Another less-known advantage of RIM is its leading market
positions in other countries. RIM currently has a 60% of smart
phone market share in Nigeria and 50% in South Africa, according
to research from Canalys. South Africa and Indonesia are the
company's two biggest markets after the U.S. and the UK.
Asia Pacific in particular is a key market for demand. "Asia
Pacific accounted for over 53% of the worldwide smart phone
market. China has been a powerful driver behind volumes again for
many vendors and the market broke through the 50 million unit
barrier this quarter," Canalys said.
On a long-term basis, the company has also been able to increase
revenue at a rate of 58.7% over the past ten years, and book
value at a rate of 29.1%. Introducing an ambitious new iteration
of its once game-changing mobile device that led that growth
will, it hopes, revive interest and sales going forward.
The new BlackBerry 10 features a touchscreen virtual keyboard, a
"BlackBerry Flow" application grid for real-time multitasking in
and out of programs. The BlackBerry "hub" keeps apps and messages
together so users can respond to messages from any social
networking platform from one place.
BlackBerry COE Thorsten Heins told the BBC in October that it was
more than an update of previous phones. "We're not just building
a new update of a Blackberry sub - we're building a whole new
mobile computing platform. Don't underestimate the dynamic that
this platform is going to create in the market," he said.
"What I see, in my markets, in the markets I'm in, outside of the
U.S. - huge growth, huge commitment to BlackBerry, and in the
U.S., we're going to regain our market share with BlackBerry 10"
The BlackBerry 10 is set to launch on Jan. 30, 2013. The company
is expecting that sales of its BlackBerry 7 could slow until then
as users hold off purchasing new phones until the new version is
available. To compensate, it plans to use pricing initiatives the
BlackBerry 7 devices and services fees to maintain its subscriber
base. It will also increase marketing spending on the new phone
in the fourth quarter. Consequently, RIM said it expects an
operating loss for that quarter.
The first quarter, in which it will report BlackBerry 10 sales
numbers, will therefore be a great determining factor in whether
the company will be able to create momentum once more and whether
Watsa will make money on the investment. At an average purchase
price of $16.98, the stock would need to gain 34% more from
today's price of $11.15 to see an average profit.
See Prem Watsa's portfolio here. Also check out the Undervalued
Stocks, Top Growth Companies and High Yield stocks of Prem
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