Friday, June 29, 2012

RIM: Just Not Forthcoming Enough

Long-time readers of my site know that I purchased shares of Research in Motion before the sh*t hit the fan. I'm a satisfied Blackberry user, thanks in large part to BBM and the keyboard. While I thought it had enough competitive advantages (network, BBM, security, corporate integration) to hold its own until its software caught up to that of the competition, I was dead wrong about this. Though I am happy with the product, clearly others are not, leading to a miss on my part.

But that's an old story now, as Rim's failures have been clear for a while now. What irks me about the company now is how despite a management change, the company's culture of obfuscation when it comes to investor communications does not appear to have changed. Yesterday's conference call provided a number of examples.

It was pretty clear from the get-go that management wanted to limit the discussion. The company spent more than 30 minutes (i.e. the majority) of the call on prepared remarks, most of which were already disclosed in the firm's press release which all conference call participants already had access to.

Though RIM is not the only company that does this (a practice that I would like to see ended!), RIM goes even further. They had a guy on the call whose only job appeared to be to cut follow-up discussion off and get the operator to move to the next question.

If management were actually answering the questions asked of them, perhaps the above wouldn't be such an issue. But because they were dodging many of the initial questions, follow-ups were necessary!

For example, one analyst asked for margin info on the company's services business so that it could be valued separately. That question was completely acknowledgement, not even a "We don't disclose that for competitive reasons."

Other times, management would answer a different question than what it was asked. For example, when asked about operating cash flow for the current quarter, management's bewildering answer seemed to focus on the company's line of credit and its impending extension.

Once, Heins even refused to answer a question that is already public: What are the factors upon which you are compensated? Heins stated that this is between him the board, but as a public company, this is public information! In addition to a base salary, Heins is entitled to a bonus that is based on targets the firm has set for revenue, diluted EPS, and net subscriber additions, according to the company's information circular. So management would like to make private that which is already public?

New CEO Thorsten Heins had an opportunity to change this culture when he took the helm. Clearly, the company's problems cannot be laid at his feet, as he took over a sinking ship. This should have allowed him to open the kimono by being more transparent with investors, relatively free from the desire to avoid associating with failure, something the previous leadership could not have done. Instead, the lack of discussion and the dodging of questions make it clear that he has no intention of being forthcoming with investors. How is one to value what's left of this company?

Disclosure: Author has a long position in shares of RIM


Anonymous said...

Saj, this is a great insight. In my view, management seemed hostile in responding to some analysts in the past, and yesterday's call indicates a similar disposition. Management appeared adamant in earlier calls that the company was determined to flawlessly execute on timelines. The push back of BB10 appears at odds with that earlier stance. Also, the repeated references to investment banking advisors, long-term stakeholder value, and a supposed willingness to procedurally "consider" all available options, appears to be more of a legal cloak than a guiding principle. Unfortunately, management's discourse seems focused on "procedural" steps with a view to building up legal buffer to ward off shareholder lawsuits or a potential hostile bid, rather than communicating a viable plan that, in substance, is likely to advance the long-term interests of shareholders. I'm also long RIM on the belief that at least one competitor needs to acquire RIM in order to complete their ecosystem and provide customers with an attractive alternative to Apple.

dgforvalue said...

Given how you feel about management, what is your reasons for still holding a position in RIM?

Saj Karsan said...

Hi dg,

When sentiment is at its worst, I believe it's the worst time to sell. RIM can be profitable as a smaller company if it cuts costs, as it operates in a growing industry where there are barriers to entry. At a large discount to tangible book, I believe it would be a reactionary and emotional sell, not a logical one.

Anonymous said...

I agree that at current prices its the worst time to sell RIM.

I'm surprised there isn't more commentary on this blog post. There was more discussion on earlier posts. Has everyone else sold off their RIM shares or just given up hoping for a turnaround?