Category: Investing

On March 31st, Research in Motion (RIMM) released its quarterly earnings.  Prior to the report, every day for at least six weeks, I heard about RIMM’s storied pre-earnings run.  It reached a feverish pitch on March 8 – when the stock price penetrated a price gap from September.  In the technical analysis world, gaps that are penetrated are often filled.  The calls for $82 were all over the RIMM stream on StockTwits.

I use technicals as well as fundamentals  in my stock analysis.  My fundamental work is not the traditional examining of PEs, Book Values, etc., but trying to understand the catalyst that are driving the stock.

Apple’s iPhone has revolutionized the industry.  Every cell phone manufacturer is under tremendous pressure to design a competing phone.  Unfortunately, for stockholders the companies are not delivering and the stocks are taking a thumping. Nokia became the latest victim losing 13% of its value on Thursday.

During RIMM’s earnings conference call their CEO, Jim Balsillie, attempted to calm investor’s concerns about the future.  He said, “If you could see the roadmap, you’d be blown away.”  Blowing away time arrives on Monday 4/26 at the Blackberry WES 2010 Symposium.

In my opinion, unless their next phone featuring an updated OS and browser is shipping in June – it’s back to the woodshed for the stock.  Apple’s refreshed iPhone will be released in June.  Every day RIMM doesn’t have a competing phone it’s losing revenue and mind share.

I will be listening intently for a June release date of their next “super phone”.

For the record, I am short RIMM, PALM, NOK, MOT and long AAPL (For Investors the Smartphone War is Over). Positions could change at any time.

On April 12, Bloomberg News reported that Palm had engaged Goldman Sachs and Frank Quattrone’s Qatalyst Partners to find a buyer.  Palm closed at $6.04/share that day.  The next morning, I wrote “I’m Betting on a Palm Take Under or Bankruptcy.”   Considering the stock has traded as high as $14 this year, a buyout of $6/share or less would qualify as a take under in my book.   Needless to say, it wasn’t a very popular position.

The news yesterday shows how desperate the situation is becoming.

• HTC Not Bidding for Palm after Reviewing its Numbers
• Lenovo Emerges as Leader to Buy Palm Inc.
• Don’t Bet on Lenovo Saving Palm
• Who Will Buy Palm? If Not HTC, How About HP?
• Palm’s Back-Up Plan If Its List Of Buy-Out Candidates Shrinks To Zero

Eric Savitz, Barron’s, released an article after the close that will have analysts scrambling over the weekend.  He concluded that Palm was worth about $5.09 a share to shareholders after backing out debt and taking into consideration a preferred position of Elevation Partners.  That assumes the company was acquired for $1.2B – a number the company’s advisers had been previously seeking (Reuters).

I am becoming more confident in my stance with each passing day.  Being right is one thing.  Making money while being right is another.  The later is the one I care most about.  I tweeted the following before the close “$PALM will best its low this week w/o a rescue this weekend. $4.50 sounds about right for Mon…”  Let’s see how it plays out.

Palm on Friday closed up 17 cents, or 3.5%, to $5.03.

Palm buyout talk has been the buzz since their dismal earnings report on March 19.  Yesterday, it reach a feverish pitch after Bloomberg News reported that the company has engaged Goldman Sachs and Frank Quattrone’s Qatalyst Partners to find a buyer.  Its stock price is up 50% over the last five days as investors get positioned for their big payday.  I’m taking the other side and betting on a take under or bankruptcy.  Here is why.

First of all, let’s take some potential pursuers names off the table.  Microsoft, Nokia, Motorola, Research in Motion, Google – won’t happen.  Of those five, Motorola would make the most sense.  However, Motorola has invested significant time and resources into Google’s Android.  That strategy is looking very questionable now with the release of Google’s own branded phone (Nexus One).  Motorola’s phone will always be a step behind Google’s phone as demonstrated at the Nexus One launch – when the Nexus One was running a newer version of the OS.

Nokia has little presence in the US, so Palm would help there.  However, Nokia already has two operating systems.  Would they want a third?  On 3/31,  at Research in Motion’s earnings  call their CEO said that analyst would be “blown away” with their new road map to be discussed at the end of April.  Getting involved with Palm buyout talks would call into question their road map and send the stock to the woodshed in a nanosecond.  Microsoft is fully committed to Windows Phone Mobile 7, so they are out.  Google is happy with Android.  So, who does that leave?

The names circulating yesterday were HTC, Lenovo, and Cisco.  Last night a report by Reuters, threw  two Chinese equipment makers into the mix – Huawei and ZTE (Huawei Approached by Palm).  From the report,

“Huawei and ZTE are potential buyers. It makes sense: they don’t have an operating system or a brand, but they have cheap manufacturing costs and money to invest and develop the brand,” said IDC analyst Francisco Jeronimo in London.

“Consumers don’t associate Chinese brands with quality products and don’t pay a premium for such a mobile phone … Palm would be perfect for them.” ZTE, China’s No.2 telecoms equipment maker, could not be reached for comment.

As far as I am concerned the last statement, “”Consumers don’t associate Chinese brands with quality products” eliminated Huawei, ZTE and Lenovo.  Whether that statement is true or not can be debated.  However, in technology company buyouts, especially software, the most important asset walks out of the door everyday (the employees).  If Palm employees believe that they will be involved in a “non-premium” product they will walk.

HTC is a Taiwanese company that is making some in roads in the US.  Maybe a combination would put them in the “premiere” category.  They are being sued by Apple, so Palm’s patent portfolio may give it some ammunition to fight with.  There would definitely be some cultural issues that must be overcome.

That only leaves a few other candidates – Cisco, Dell and HP.  Dell and HP are war proven veterans from the PC battles.  They made their bones with a third party OS.  Do they really want to bring it in house?

Thus, the last company standing is Cisco.   On yesterday, I thought a Cisco buyout was a crazy idea and still kinda do.  However, it may be Palm’s only option.  Cisco provides the allure of working on premium products.  Both are West Coast companies, so cultures will be somewhat similar.  However, this ain’t John Chambers first rodeo.  Forget about a buyout premium. Palm’s average share price over the last 30 days is less than $5 and without the buyout speculation it would be even lower.

If Chambers bails Palm out it will be a take under.  If not Cisco – cancel Christmas.