Saturday, January 28, 2012

Betting on BlackBerry's Revival?

Hugo Miller of Bloomberg reports, RIM’s Heins ‘Here to Fight’ for BlackBerry Revival:
Research In Motion Ltd. (RIMM)’s Thorsten Heins, five days into his job as chief executive officer, pledged to regain lost ground in the U.S. smartphone market and said he held talks with rivals eager to license its software.
RIM will begin a campaign with U.S. carriers next week to entice consumers to try its latest BlackBerry 7 devices with touch screens and better Web browsers, Heins said yesterday in an interview at Bloomberg headquarters in New York. The promotions won’t be about “just simply money,” they will also involve mobile applications, or apps, he said.
“We have to do something dramatically different in the U.S. to get our market share back,” said Heins, 54. “I’m here to fight. I’m here to win.”
Heins, a 24-year veteran of Siemens AG (SIE), faces the challenge of reversing momentum at RIM after the company lost out in the smartphone market to Apple Inc. (AAPL)’s iPhone and devices that run on Google Inc. (GOOG)’s Android software. RIM’s revenue has slumped for two quarters, driving RIM shares down 75 percent last year.

Heins, who took over from co-Chief Executive Officers Jim Balsillie and Mike Lazaridis, said his immediate priority is to revive BlackBerry sales in the U.S., get a revamped version of Waterloo, Ontario-based RIM’s struggling PlayBook tablet onto the market next month and introduce its new operating system, BlackBerry 10, on time later this year.
“In the first 100 days, that is what you’re going to see me focus on,” Heins said. “My first job is to get BlackBerry 7 into all of your hands.”
U.S. Missteps
The Munich native is getting by on a handful of hours sleep a night so that he can travel by day to meet customers and run the business by night on his BlackBerry. The company needs to improve its marketing and communicate better to build excitement about its products, he said.
U.S. sales fell 45 percent last quarter, dragging revenue lower even as sales in emerging markets like Indonesia and India surged. The BlackBerry’s share of the global smartphone market fell to 11 percent in the third quarter of 2011, from 21 percent two years earlier, according to Gartner Inc. The aging BlackBerry lineup failed to match the features and number of applications available on the iPhone and Android devices.
“When BlackBerry got positioned the way you experienced it, it was on a set of values: battery life, network efficiency, security and best typing experience,” Heins said. “In the U.S. specifically, what we missed is a shift in those paradigms” to more consumer-oriented features like Web-browsing and apps, Heins said.
Licensing Talks
Now, RIM is rebuilding its lineup of BlackBerrys on BB10, an operating system based on software used to run nuclear power plants and unmanned aerial drones. During his interview, Heins repeatedly went back to a video demonstration of PlayBook 2.0, its new tablet software which incorporates many of the features that will come with BB10. He showed how users can flip between e-mail, Web browsing, Facebook and Twitter without ever leaving any of those programs.
RIM’s new software is appealing enough that he’s been approached about licensing it, Heins said. The company has held discussions with interested handset makers and personal-computer makers, he said, declining to name them.
“We’ve had lots of interest about this,” Heins said.
RIM rose 3.3 percent to $16.80 yesterday. The stock was given a lift after Fairfax Financial Holdings Ltd. (FFH) said it doubled its stake in RIM. Prem Watsa, who runs Fairfax, was named as a director at RIM this week as part of RIM’s leadership changes.
The stock has rebounded after falling earlier in the week when comments by Heins on a conference call were interpreted by some investors as a sign that he would run RIM much in the way of his predecessors.
Neither that nor the suggestion that he will be unduly influenced by Lazaridis, who is staying on as vice chairman and leads RIM’s innovation committee, is correct, Heins said.
“I love to work with Mike in his visionary capacities,” he said. ’’But make no mistake, I run the company.’’
One look at RIM's share price over the past two years (click on chart below) will show you the company has been struggling to keep up with rivals like Apple which overtook Samsung in Q4 smartphone sales.

But don't count RIM out just yet. The stock is rebounding and some very successful funds are snapping it up. One of RIM's top institutional holders is Fairfax Financial Holdings, which recently doubled its stake in the Blackberry maker:

Fairfax Financial Holdings Ltd. (FFH), the insurer run by Canadian investor Prem Watsa, doubled its stake in Research In Motion Ltd. (RIM) in a vote of confidence in the BlackBerry maker after Watsa joined the company’s board.
Fairfax owns 26.85 million RIM shares, up from 11.8 million shares in September, according to a regulatory filing today. The company raised its stake to 5.12 percent, worth about $451 million at today’s closing price.
Watsa was named a RIM director on Jan. 22 as part of a management shakeup that included the replacement of co-Chief Executive Officers Jim Balsillie and Mike Lazaridis with former operating chief Thorsten Heins. The company is rebuilding its product line to try to stem recent market share losses to Apple Inc. (AAPL)’s iPhone and devices that run on Google’s Android platform.
“This is a vote of confidence in the current trajectory of the company or he thinks that there’s some value here that can be unearthed,” said Adnaan Ahmad, an analyst at Berenberg Bank in London. “Watsa is extremely well-respected, kind of like the Warren Buffett of Canada, so the bottom line is that the stock today should be up on the back of this.”
Shrinking Market Value
RIM rose 3.3 percent to $16.80 at the close in New York. The stock, which fell 75 percent last year, lost more value this week after Heins told investors there isn’t “drastic change needed.”
RIM’s share of the smartphone market tumbled to 11 percent in the third quarter of 2011, from 21 percent two years earlier, according to Gartner Inc.
The largest shareholder in RIM is Primecap Management Co., with a 5.5 percent stake, according to data compiled by Bloomberg. Lazaridis has a 5.4 percent stake in the company and Balsillie owns 5.1 percent, the data shows.
“This is a huge psychological boost,” said Ian Nakamoto, director of research at MacDougall MacDougall and MacTier Inc. in Toronto, whose firm oversees C$4 billion for clients, including RIM shares.
Fairfax has said RIM is an attractive investment because the company is trading at less than book value with free cash flow, yet still has a growing subscriber base and increases in revenue.
Favors Buffett

The stock purchases were made by Watsa, Fairfax and about a dozen of the Toronto-based company’s subsidiaries, according to the filing.
Toronto-based Fairfax bought 6.5 million shares on Jan. 25 and another 7.6 million shares yesterday, according to the filing. That means the company has spent about $230 million buying RIM shares in the past two days, based on Nasdaq prices for those dates.
Born in Hyderabad, India, Watsa has built Fairfax by investing in the assets of out-of-favor securities, and said this week he may increase his stake in Waterloo, Ontario-based RIM.
Watsa, 61, founded Fairfax in 1985 and has patterned his style of value investing after Warren Buffett, recommending shares of companies such as Wells Fargo & Co., Johnson & Johnson, Kraft Foods Inc. (KFT) and US Bancorp. (USB)

Fairfax benefited from declines in U.S. banks during the financial crisis, purchasing credit-default swaps on lenders. The swaps, instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt, led to investment gains of $2.72 billion in 2008.
Watsa has shifted in recent years to investing in U.S. municipal bonds backed by Buffett’s Berkshire Hathaway Inc. (BRK/A)


I wonder what Watsa thinks of the solar boom in 2012, but he's too conservative to be investing in solar stocks. Although I do not own RIM shares right now, the share price is attractive at these levels and on my radar. If the company is able to boost market share successfully launch Blackberry 10, RIM will rebound and thrive. And although I love my iPad and iPod, I will never give up my BlackBerry (but the Torch disappointed me, stick to the Bold).

Pension funds should be looking at RIM and many other companies that are at attractive valuations. I can come up with at least 20 'revival stories' off the top of my head but there are literally hundreds. For example, look at the recent selloff at Corning (GLW) as an opportunity to buy an excellent company on the cheap (no rush, share price may fall further, but put it on your radar).

I know it's sexy to focus on private equity but pensions should be focusing a lot more on public equities, opportunistically taking outsized positions to deliver alpha. That's what Neil Petroff and the folks over at Ontario Teachers' are doing on active management and that's what every pension fund should be doing.

Below, Thorsten Heins, Research In Motion Ltd.'s new chief executive officer, says the maker of the BlackBerry needs to "be constantly communicating" with customers about its products. Heins, who replaced co-Chief Executive Officers Jim Balsillie and Mike Lazaridis, spoke in a video posted by the company. Jon Erlichman reports on Bloomberg Television's "Bottom Line."

Bloomberg also spoke with Vic Alboini, chief executive officer of Jaguar Financial Corp., who talked about the outlook for Research In Motion Ltd.'s strategy under CEO Thorsten Heins and the possibility that the BlackBerry maker will be bought or split.

Mr. Alboini is very critical and thinks that the appointment of Heins means RIM is staying the course. He makes some excellent comments in this interview, especially on beefing up the marketing. It's pathetic, they need Peter Economides to rebrand RIM, just like he rebranded Apple. Watch his amazing lecture (in English) below.