Watsa no stranger to betting on perceived value

[SharperDingaan]

Keep in mind that we're value investors looking at a busted mo-mo darling, & one of our biggest weaknesses is buying too early. It is highly likely that declining market share & marketing miss-steps - driving headline news, is going to trump the value metrics for at least the next 6 months or so.

Hard to believe that we not see at least one additional manic 1/3 sell off by late summer. There's no rush.

SD

 

 
 
 

[VAL9000]

Folks are surely confusing "coolness" of iPhones and Androids with the game RIMM is playing & winning. I just looked at the latest quarterly results, RIM shipped ever more BB devices.  "Corporate messaging/email anywhere/anytime" is the sport. The less cool the devices the better. Blackberries and Dell Laptops are peas in a pod to the corporate world. The buying decision is completely out of the hands of you and I ("coolness" customers) and in the hands of the IT/Finance leaders in the corporate world. They like functional, cheap, highly secure and instantly serviceable solutions. No, they don't want music or Youtube capability:-) Dell and RIMM own this space. The moat is that the more the devices already in use in an organization, the more difficult it is to switch. Prem is absolutely correct, even if RIM loses marketshare in the future, they have quite a bit of sticky revenues.

If only RIM understood this, too.  A significant chunk of their marketing and product development is targeted squarely at the consumer (think Playbook gaming, BBM billboard ads).  If RIM started to act in a manner consistent with the "business first" thesis, I would consider acquiring shares at this level.  I'm with SharperDingaan for now - sitting this out, but keeping an eye on either a change in position or another move down in price.

For what it's worth, being saturated at a customer site doesn't qualify as a moat with mobile devices.  This isn't Windows, where all of your software runs on a single platform.  The vast majority of businesses supply their people with smart-phones solely for voice and email capabilities.  Those two applications are nearly frictionless in terms of switching.  This will change if businesses begin using mobile hardware as a platform, but today it's just not relevant.  It may never be the case if the cloud application model becomes the default standard.

The comparison to Dell isn't a fair one, either.  In this context, Dell is a low cost producer of computer hardware.  RIM is not.  Smart phones haven't yet become a commodity business, so price isn't the key decision factor for most buyers.  Hence why we rarely see Android in the corporate world, despite their lower pricing.

I am going to offer that we're well on the way to a commoditized smart phone market.  As has been mentioned elsewhere, the innovation gap that Apple originally opened has largely been closed by competitors.  Assuming there are no game-changing innovations in the next few years (think touch-interface circa 2007), the race in the future will be won by software marketshare first and phone hardware pricing second.  The problem for RIM is that they are a hardware maker (terrible margins) supplying exclusively to a third- or fourth-place software platform (terrible scale).  So when commoditization kicks in, they are going to be squeezed from both sides, and that's not a good place to be.

I still think that the best way forward for RIM is that they should either become a hardware company, a software company, or split themselves in two.  I would also support a niche business model where they service only the business world, with product development geared towards security, reliability, device fleet management, and other business-oriented concerns.  Right now, they appear to be fighting too many battles on too many fronts, and I think it's pretty clear that they are losing most of them.

[Parsad]

I still think that the best way forward for RIM is that they should either become a hardware company, a software company, or split themselves in two.  I would also support a niche business model where they service only the business world, with product development geared towards security, reliability, device fleet management, and other business-oriented concerns.  Right now, they appear to be fighting too many battles on too many fronts, and I think it's pretty clear that they are losing most of them.

I think you're dead on here and they need to focus solely on business, security, etc.  Unfortunately, there are facets of their business they are going to have to add to, so they can compete with others...such as cloud computing is becoming an integral part of data management for businesses.  The easier they can make the set-up and transition for IT departments, the more likely that will be the system people want to use.  Apple is making inroads into business users because they are slowly offering the broadest array of services, and the useability factor is extremely high.  Most of their competition is going to have to focus on niche areas to survive.  Cheers!

[txlaw]

Keep in mind that we're value investors looking at a busted mo-mo darling, & one of our biggest weaknesses is buying too early. It is highly likely that declining market share & marketing miss-steps - driving headline news, is going to trump the value metrics for at least the next 6 months or so.

Hard to believe that we not see at least one additional manic 1/3 sell off by late summer. There's no rush.

SD
 

The problem with this notion is that it is very difficult to predict how the market will react to either good or bad news in a situation like this, unless you have "trader's sense."  Therefore, it's best to rely on the concept of MOS and prepare to average down if there is a manic sell off.  In other words, don't buy a full position unless it's going to be a small one.

Edit: I suppose you can buy a full position if you really believe it's very undervalued, for example, if you think RIMM sells well below liquidation/runoff/break up value, but I'm not there yet.

[Ben Graham]

Keep in mind that we're value investors looking at a busted mo-mo darling, & one of our biggest weaknesses is buying too early. It is highly likely that declining market share & marketing miss-steps - driving headline news, is going to trump the value metrics for at least the next 6 months or so.

Hard to believe that we not see at least one additional manic 1/3 sell off by late summer. There's no rush.

SD
 

The problem with this notion is that it is very difficult to predict how the market will react to either good or bad news in a situation like this, unless you have "trader's sense."  Therefore, it's best to rely on the concept of MOS and prepare to average down if there is a manic sell off.  In other words, don't buy a full position unless it's going to be a small one.

Edit: I suppose you can buy a full position if you really believe it's very undervalued, for example, if you think RIMM sells well below liquidation/runoff/break up value, but I'm not there yet.

The problem with this notion is that it is very difficult to predict how the market will react to either good or bad news in a situation like this, unless you have "trader's sense."  Therefore, it's best to rely on the concept of MOS and prepare to average down if there is a manic sell off.  In other words, don't buy a full position unless it's going to be a small one.

Edit: I suppose you can buy a full position if you really believe it's very undervalued, for example, if you think RIMM sells well below liquidation/runoff/break up value, but I'm not there yet.

txlaw, You have an excellent approach to value investing. Prem Watsa needs to hire you.

[SharperDingaan]

If you're buying RIM today, you do so in expectation that it will be a venture capital J-curve investment. Some now, 2nd round later at a lower price, 3rd round later still .... with the whole position accumulated over maybe 1 yr. If RIM falls 30% the day after you buy it, it's not that bad a thing.

With retail you're small & obscure enough to be able to pick your spots & buy-in at anytime - without moving the market. For FFH, not so much - best they can do is start at around 2.0-2.5%, double down, then double again if needed. At the 4th round, change to convertible debs.

Each round is a reassessment. Sometimes the decision is no, you bite the bullet & move on. We wish FFH the best of luck, but for us, it is a pass that we can afford. In FFH's shoes it is more likely a pass on a strategic investment that they cannot afford.

SD

         

[Liberty]

The scariest thing about RIM's future, IMO, is the culture inside the company. I have no first hand experience with it, but what I hear is not very good. Tech companies live and die based on how many A players they can get and retain (and those in turn make the place attractive for other A players that can then be hired - it either becomes a virtuous cycle or a vicious one, it rarely entirely stabilizes one way or the other).

What I heard is that RIM is losing many talented people and they are becoming a second tier choice for talented engineers and designers (might go there if they can't get into Apple/Google/Facebook/Amazon/etc). This isn't farming; top level A players don't just do 3x the amount of work that B players do, they do things that no quantity of B and C players put together can do. You can't fake technical genius or taste.

So if I was a RIM shareholders, I'd try to get as much information as possible about the state of the culture and recruitment at RIM. But that's not easy, because most non-technical people cannot distinguish between A and B players (B players can be great at what they do, come from the best schools with the highest grades, etc.. maybe the X factor is just having a totally unbalanced life and spending every waking moment obsessing over the quality of what you're working on to the point where you would almost do it for no pay? Maybe it's the only way to truly reach the top, kind of like how Buffett was smart to begin with but he also focused his whole life on investing)

[txlaw]

The scariest thing about RIM's future, IMO, is the culture inside the company. I have no first hand experience with it, but what I hear is not very good. Tech companies live and die based on how many A players they can get and retain (and those in turn make the place attractive for other A players that can then be hired - it either becomes a virtuous cycle or a vicious one, it rarely entirely stabilizes one way or the other).

What I heard is that RIM is losing many talented people and they are becoming a second tier choice for talented engineers and designers (might go there if they can't get into Apple/Google/Facebook/Amazon/etc). This isn't farming; top level A players don't just do 3x the amount of work that B players do, they do things that no quantity of B and C players put together can do. You can't fake technical genius or taste.

So if I was a RIM shareholders, I'd try to get as much information as possible about the state of the culture and recruitment at RIM. But that's not easy, because most non-technical people cannot distinguish between A and B players (B players can be great at what they do, come from the best schools with the highest grades, etc.. maybe the X factor is just having a totally unbalanced life and spending every waking moment obsessing over the quality of you are working on to the point where you would almost do it for no pay? Maybe it's the only way to truly reach the top, kind of like how Buffett was smart to begin with but he also focused his whole life on investing)

One could make the same argument about MSFT, although I'd be willing to bet that MSFT reverses that trend slowly going forward.

Actually, some of the problems inside the company have been fairly well publicized.  There were a bunch of employee letters that went around criticizing the bureaucracy and reactionary nature of the organization at RIMM.  You have to take that into account when valuing the company.