tag:blogger.com,1999:blog-7913945856188337130.post6744924143972716394..comments2023-05-04T19:35:30.215+10:00Comments on Portfolio14: Research in Motion is absurdly cheap (RIMM)Johnhttp://www.blogger.com/profile/14682393043392310140noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-7913945856188337130.post-86709988553199194302014-03-30T17:58:36.566+11:002014-03-30T17:58:36.566+11:00I still have a small position. I still have a small position. Johnhttps://www.blogger.com/profile/14682393043392310140noreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-377383884577085752014-03-28T13:37:48.892+11:002014-03-28T13:37:48.892+11:00are you still long?are you still long?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-58166950542743571782012-08-20T02:54:00.622+10:002012-08-20T02:54:00.622+10:00Yash,
Do you still think the article is as thorou...Yash,<br /><br />Do you still think the article is as thorough and full of a "Margin of Safety" now that the stuck plummeted to $7.50/sh now?<br /><br />Read mj's comments 2x and call me in the morning.<br /><br />The blogosphere value investors constantly overlook "network effects in reverse." And that takes all forms -- technology (RIMM, NOK), price competition (SVU), and mortgage originators (IndyMac circa 2007).<br /><br />Later,<br />PAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-67816659172149089232012-07-26T23:05:17.844+10:002012-07-26T23:05:17.844+10:00Really well done article! Extremely thorough and I...Really well done article! Extremely thorough and I really like the amount of Margin of Safety you've put into your valuation.<br /><br />I'm pretty new to the value investing game (so I have a very weak understanding of the financials) so my primary thesis for investing in RIM was that if it's good enough for the great Prem Watsa @ $44; it's good enough for me @ $14.<br /><br />P.S. I was pretty pissed to see the gurufocus writer just outright copy your article without even as much as a shout out thanking you.yashhttps://www.blogger.com/profile/14183137514642316961noreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-4155337781983180482012-06-03T06:00:23.559+10:002012-06-03T06:00:23.559+10:00Thanks for the original analysis and the comments....Thanks for the original analysis and the comments. It seems to me that RIMM is in a different position than NOK was a few years ago. RIMM started the smartphone while NOK missed completely a paradigm shift. RIMM needs to defend its position, which is much easier than entering new territory as NOK needed.bigshannoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-35652963556206556062012-05-30T22:13:52.217+10:002012-05-30T22:13:52.217+10:00Just read mj's 4/15 post, and it's excepti...Just read mj's 4/15 post, and it's exceptionally "on point," imo.<br /><br />And the news last night essentially validates it. More and more, this looks like Nokia in the low double digits - just as yesterday's fish is awfully hard to sell at "today's prices," yesterday's "electronics," once you get past overstock.com - have near-zero value, "unfair" though that may be.<br /><br />I think the o.p. said, "I'm just taking the inventory value as stated." The acquirers that RIM needs more than ever are more likely to value them properly - at much lower numbers. Nobody thought that going from BB5 or 6 to BB7 and then BB10 would be easy, but it appears that most people underestimated the task in North America and Europe.<br /><br />Yes, India and Indonesia are attractive markets, but to me this is more like old Amer. cars winding up in Cuba or Africa 10-30 years back - it may be a great business for a modern day pirate-type, but a Canadian company actually quite constrained by being that ... is not likely to out-sell one based in Korea or China for more than some number (smallish) of months.Ed Towneshttp://www.yahoo.comnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-23442940343413406052012-05-30T21:58:43.245+10:002012-05-30T21:58:43.245+10:00Agreed. Great analysis, esp. with the probing comm...Agreed. Great analysis, esp. with the probing comments.<br /><br />I'm still bearish, because some of your "assets" strike me as very possibly the opposite - HERE and now. Prem on the Board, for example. Talk about a mistake made too often. Graham/Dodd can't be "tweaked" to apply to tech 80 years after it was formulated. In some ways, Newton to Einstein was "easier." ... So Prem "didn't have a clue," and now he's got to be bitter, and clamoring for cost cutting is more in keeping with aggressive cancer treatment - cut and cut and maybe we can keep x alive - than it is maintaining this as a "growth company" worthy of serious consideration as an acq. by other growth companies.<br /><br />You recognize that patents have a half life or something like that.<br /><br />So does a tech company that starts to stumble - and 2-4 years of stumbling is like the 100 Years War in this sphere. Their good "businesses" have had a bullseye on them all that time, and RIM has clearly not done well with its tech innovations for some time.<br /><br />The 1-week outage speaks volume about "taking one's eye off the ball."<br /><br />HP's experience with Palm will color (almost surely AS IT SHOULD) the real world valuation process.<br /><br />Last, not throwing Playbook under the bus marks Thorsten as the 2nd stringer promoted to a position he's colossally incapable of handling well. So, too, is the absence of deals - the high-level people exiting may not speak volumes, but the new hires in key roles DO. They cannot attract talent at a time that they need it desperately.<br /><br />Your analysis smacks of what Bain Capital and other p.e. firms might engage in - and that's probably a near fatal flaw. Maybe, you can "milk" a rolled steel operation, but things like BES and BBM are as different from that as night is from day.Ed Towneshttp://www.yahoo.comnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-18250919632708643022012-04-15T10:00:21.538+10:002012-04-15T10:00:21.538+10:00ok so you are kind of admitting that QNX has to be...ok so you are kind of admitting that QNX has to be replaced by a custom version of Android. qnx was a waste of capital.<br /><br />BES is a closed proprietary piece of software that enterprises use to manage BB devices. It is expensive because it is a closed system from a single source. There are other cheaper software packages that manage ios and android devices. Exchange also works with ios and android. BES as a platform is in runoff. as customers migrate away from BB devices, CIOs will rip out the expensive management platform and replace it with something far more economical.<br /><br />as far as $30 valuations, they were based on earnings projections of $4 and $5 a share. It goes without saying that paying $13 is better than paying $30 and $40. However, rimm business has gotten worse over the last year. <br /><br />Take a look at the chart of Nokia. It is now a $4 stock. Do you really think when it went to $13, down from $50 that anyone thought it would go to $4? <br /><br />Intrinsic value is a guess about the Future. Making a sum of the parts valuation on a Tech company is extremely difficult. they can go away. <br /><br />A value investor with a following made a post about NOK over at seekingalpha in oct 2010 when the stock was almost $11. At the time He did a very similar sum of the parts analysis of nok and thought it was very cheap. This is what I wrote at the about the same time. we saw things very differently.<br /><br />http://seekingalpha.com/article/236725-nokia-is-still-overvalued<br /><br />Nok is a perfect example of what happens to tech stocks that no longer have a viable technology. they go into a netherworld where growth stock investors abandon them and value investors don't buy because they can't predict where technology is going. They have no constituency. They can go to $4 because they begin to lose money and shareholder value is destroyed by burning cash and liquid investments, and writing down assets. Study the recent history of Nokia from about 2008 to 2012.<br /><br />thanks for the convo, best of luck. go with your convictions. you will learn a lot from this investment no matter what happens. cheers.mjnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-4194593678964969072012-04-15T09:14:12.950+10:002012-04-15T09:14:12.950+10:00Do you have more scuttlebutts that BES is losing m...Do you have more scuttlebutts that BES is losing market? I'll be interested to hear.<br /><br />Regarding the $30 valuation, I would have these questions in mind: (1) is the metholodogy used to get the $30 figure more dependable or that used to get the $13 figure more dependable? (2) Is RIMM safer now than it was last year? (3) Are we confused price with intrinsic value? (That the current price at $13 doesn't mean $30 valuation is wrong.)<br /><br />It's been great discussions. Thanks.Johnhttps://www.blogger.com/profile/14682393043392310140noreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-41237024316101254002012-04-15T09:04:24.624+10:002012-04-15T09:04:24.624+10:00I'm guilty of being lazy again here.
When I ...I'm guilty of being lazy again here. <br /><br />When I said putting QNX on the top of Android, I should've said putting RIMM's "proprietary layer of software" on the top of Android. "QNX" was just easier to type. :-)<br /><br />That was interesting anecdote on MeeGo. Thanks. I learn something everyday.Johnhttps://www.blogger.com/profile/14682393043392310140noreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-101959314907033832012-04-15T03:35:07.358+10:002012-04-15T03:35:07.358+10:00why do you need to have QNX run alongside Android?...why do you need to have QNX run alongside Android? because rimm spent a bunch of money on QNX and needs to save face? QNX is redundant. <br /><br />Amazon simply took open source Android and put a new UI on it. Rimm could do the same. Lenovo also did this. rimm could do this as well. You don't have to involved google to use android. rimm could copy the model of Amazon. <br /><br />Qnx does nothing that android can't do. They bought QNX because they did not want to admit failure. They wanted to control their own destiny. They were two years too late. Maybe three. They made the wrong move and that's why they are out.<br /><br />QNX will fail. They will eventually pull the plug. It's probably a fine OS. There were tons of better OS than Windows that are in the dust bin. Because they don't have an ecosystem. <br /><br />Elop wanted to get RIMM to adopt MEEGO so together they could create a third ecosystem. Rimm turned him down. Elop recognized that neither Meego nor QNX had a future without another large device maker joining the other. Google "elop battle of ecosystems". there are now three viable ones. ios android and wp7. There is no room for QNX.mjnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-40834483341440123222012-04-15T03:18:03.393+10:002012-04-15T03:18:03.393+10:00a number of valuations exist at the $30 range. In ...a number of valuations exist at the $30 range. In fact Prem Wasta of Fairfax invested initially at $40. It looked very cheap on the numbers at $40 because people assume it would never lose money and it was a stable device business that could earn $5 a share. <br /><br />The BES system is not that viable anymore. It is a closed system. Exhange server includes the functionality of BES as part of the package. I agree the patents have value and i believe that if they really cut away all the fat here that they could get down to a profitable niche business. <br /><br />However, their business in emerging markets is likely to take the same path as it did in North America. Android was just a couple of years behind in emerging markets; but it has a far far superior business model than rimm does overseas. Android is catching up and is advancing more rapidly as a a platform. The device business of rimm is over. they lost.<br /><br />QNX will never get off the ground imo, and rimm will have to choose to NATIVELY adopt either wp7/8 or Android to be a viable device maker. QNX has no ecosystem or apps. Making android work on QNX will never work in the marketplace. It's a kludge. <br /><br />Buying rimm stock before this massive transition of it's business is like buying nokia before they announced that the platform was burning. <br /><br />I agree this is not going to zero. there is a floor somewhere. And what could save this investment even at this price is a sale to the koreans, japanese, or chinese. I believe that they are the likely buyers of the company.mjnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-3489846622158026202012-04-14T09:08:18.881+10:002012-04-14T09:08:18.881+10:00Hi mj,
You are absolutely right that they haven&#...Hi mj,<br /><br />You are absolutely right that they haven't had any solid plan at all. The visibility is zero. The investment case I laid out is an attempt to establish a floor of its valuation regardless what the future is.<br /><br />I'm being lazy here to just absorb the decline rate of BBM cash flow into the discount rate. Here is an judgement call how big the decline rate should be. We can definitely plug in 30% instead of 15%.<br /><br />But don't forget in the valuation, the BSE business, the 2000+ patents and its software portfolio (QNX, etc) have been written down to zero. If you look around, mainstram analysts valued the patents at $1-3 billion and the rest of the assets/businesses at $1-1.5m billion. So, we are talking about an additional $2-4.5 million margin of safety here.<br /><br />Regarding the "losses" of the device business, I agree with you it's likely the pontential buyer of BBM will need to buy it together with the handset business. One thing I do disagree is whether there is zero hope in its handset business. It's selling well outside US and Europe.<br /><br />I'll be interested to look at the $30 valuation. Do you still have the reference?Johnhttps://www.blogger.com/profile/14682393043392310140noreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-18540823536199342642012-04-14T05:53:03.143+10:002012-04-14T05:53:03.143+10:00you're assuming service business doesn't g...you're assuming service business doesn't grow for three years. but also that it doesn't decline? have you thought about a scenario where it does decline? <br /><br />I don't see how a a p/e company could come in and say I just want to buy the services business. Wouldn't they also have to buy the "losses" of the device business? how much are losses worth? <br /><br />it's very difficult to value a technology company in decline on a sum of the parts basis. Why? How do you vale a moving target? Where is the business going? <br /><br />Rimm needs to do a massive restructuring to uncover a sustainable model. They have yet to lay out a plan as Elop did with Nokia late last year. And you see what happened to Nokia After the plan was put in place. It takes time. It takes 18 months for nokia before they get out of transition phase. rimm has not even started it's transition phase.<br /><br />What's the business going to look like in two years? All of the valuations I see of rimm never seem to model a scenario where they start to lose huge sums of money and they start eating into cash and investments. <br /><br />People said rimm was absurdly cheap at $30. Good luck. You may well be right.mjnoreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-71985938480806155282012-04-14T05:26:11.086+10:002012-04-14T05:26:11.086+10:00Hi mj,
Very true. When I looked at the liquidatio...Hi mj,<br /><br />Very true. When I looked at the liquidation value, I did treat it as a run-off business. The figure can be inflated. We can play with the discount rate to cater for the decline.Johnhttps://www.blogger.com/profile/14682393043392310140noreply@blogger.comtag:blogger.com,1999:blog-7913945856188337130.post-19220938238989478822012-04-14T00:55:51.034+10:002012-04-14T00:55:51.034+10:00the bbm network has no viable long term value. it&...the bbm network has no viable long term value. it's totally dependent on the customer buying rimm devices. the bbm network can start to go into reverse as people abandon the platform. it has no independent value apart from BB devices. if customers abandon bb devices, as they are, they will leave bbm, as they are. your valuation is inflated. you can't take bbm and segment it as a viable stand alone business.mjnoreply@blogger.com