Diversified Investments Hon Hai Precision Industry, Seabridge Gold -sorry Motley Fool, Royal Gold

     With all the market turbulence it's imperative that investors not only diversify their stock portfolio but choose companies that are already diversified within themselves. Here are a few companies that fit the bill.

Hon Hai Precision Industry better known as Foxconn - This is the company that manufactures everything from the xbox game console for Microsoft to the iPhone4S for Apple as well as laptops for Hewlett Packard; Its HP laptop plant in Chong-qing that produces upwards of 20 million laptops annually, was built in 2009/2010 and made Hon Hai into one of the leading employers in China's 23rd largest mainland economy (where the electronics industry ranks first ahead of vehicle manufacturing). Keep in mind that each plant can have anywhere from a couple to 15 or even 20 factories, in fact Hon Hai's largest in Shenzhen is home to some 300,000 workers. In total Foxconn has factories in nine Chinese cities.

The technology industry has recorded massive growth over the last seven years led by Apple Inc (market capitalization 6X bigger today than it was in 2005 - 390 billion vs 65 billion) which is important to remember since Hon Hai plays an integral role in Apple's success (the iPad is made by Hon Hai at a plant in Chengdu, China, the iPhone4s is manufactured at the world's largest smartphone production facility, the 200,000 unit/yr plant at Science Park, Zhengzhou). In January 2012 it announced a plan to increase its workforce by ten times in a major Chinese manufacturing city, as well Hon Hai recently stated that it will be doubling the size of its flagship smartphone-manufacturing plant in Henan province with a $1.1B investment.
-The company is obviously preparing itseslf for huge jump in size and why not? the iPad holds anywhere from 60-90% of the global tablet market, a market which could grow by 42% in 2012 to 40 million units up from 29 in 2011. As of January 2012 Hon Hai's workforce numbers 1.2 million. On March 11, 2011 Hon Hai Precision Industry (Foxconn) had a market capitalization/valuation of $36.9 billion US dollars. (source: Forbes Global 2000 List 2011 Edition)

Hon Hai recently reported a 19.8% year-on-year jump in revenue to $92 billion over the 2011 calendar year (37% increase in December) boosted by especially strong results in the month of December (revenue in the fourth quarter alone was $30B). That's significant considering that Taiwan's other technology companies Quanta Computer, Compal Electronics and Acer, all reported decreases in revenue (-1% for Quanta to $60b, -21% for Compal to $23b, -23.5% for Acer to $12.4b). Hon Hai profited over $2.5B in 2010 only slightly higher than 2009. The company has $32.0B worth of assets. One thing that could become a problem for Hon Hai is fake Apple products in China. Since the iPhone4s launch was delayed in China, more fake products have been introduced to the market.

Royal Gold (MV 3.77B, 5-day -2.37%, 1 month -4.01%, 3 month +2.77%) Is one of the world's largest and most diversified royalty companies with direct exposure to many of the world's key mining operations through royalty agreements (buys the royalty usually before the mine enters production phase). It then collects royalties (in most cases net smelter return royalties) on the net revenue made from one of five precious or base metals (or all as in the case with Peñasquito). There is little risk considering it is not responsible for mining or exploration costs (like Silver Wheaton). Considering the fact that many of the mines are either not producing or in very early stages of production (Penasquito, Pascua Lama, Malartic) strong growth in revenue (& profit) is likely; unlike other mining stocks, for Royal Gold growth isn't contingent on metal prices (unless of course they collapse which is unlikely given that we're in a commodities bull market). In the 3rd quarter of 2011 Osisko Mining's Malartic gold property reached commercial production producing 73,814 ounces of gold and 40,000 ounces silver (Malartic is home to 10.71 million ounces of gold) - Royal Gold owns a 3% royalty on Malartic.
Diversification: The company remains gold-dominant but that's slowly changing with new base-metal mines coming on tap (like Goldcorp's billion ounce silver Penasquito mine in Mexico). During the 2011 fiscal year 64% of revenue came from gold which is down sharply from 81% in 2010 and 84% in 2009. In 2011 silver contributed 6% to revenue (up from 3% the two previous years), copper steady at 10%, nickel up significantly to 15% from 4% in 2010, 1% in 2009. Other minerals like zinc and potash made up 5% of revenue up from 3% and 1% in 2010 and 2009 respectively. Most of the royalty agreements are for 2-5% however a couple like Andacollo (1.6M oz of gold reserves) which is at 75%.
more on Royal Gold HERE including nickel, lead & zinc production data by mine by year updated to reflect 2011.

Financials: Stock is up 2.77% between Oct 17 and Jan 13 2012, up 7.98% during the six month period ended Jan 13 but down 9% in the month of December. Key royalty claims; 2% NSR claim on Canada's biggest gold/silver/copper/molybdenum project (KSM) purchased in 2011 for $160m; 2% claim on Goldcorp's only major silver mine Penasquito; Barrick Gold's Pascua Lama mine in Chile. In fiscal 2011 (ends in June) revenue was up 58.5% to US$ 216m which is great considering total operating expense was virtually unchanged at $97m pushing gross profit up 190.0%. The company profited 232% more ($71.39m) however dividends were up only 23.5% to 42 cents/share. Update second quarter 2012 fiscal year (ends December 2011): profit/earnings were a record for a quarter at $23.4M up 28% yoy or 42 cents a share on royalty revenues of $68.4M, up 22% qoq. For the 2012 half, net income was $45.9M (up 52.5%) or 83 cents a share (up from 55c) on revenue of $133.3M (up 31.07%). adjEBITDA was 90% of revenue in the second quarter or $62.1M up from $48.9M in 2Q2010. For the September-December 2011 period (2Q of the company's 2012 fiscal year) the price of gold increased 23% from $1367 to $1688 an ounce. The company recently paid $170 million on its debt (credit facility) expanding available credit under the facility to $225 million. $268.3 million was raised in an equity offering held in January 2012.

Royal Gold production update for 2012 Second Quarter
According to Goldcorp/operator of Penasquito (one of Royal Gold's most lucrative interests) gold production will be 425,000 ounces and silver production 26 million ounces for the 2012 calendar year. Malartic (1.0-1.5% nr) will produce between 610,000 and 670,000 ounces of gold in 2012. Barrick Gold's Pascua-Lama mine will bein producing during mid 2013 at 800,000 to 850,000 ounces a year in the first five years. Thompson Creek's Mt. Milligan (31% complete end of 2011) will begin producing 4th quarter 2013. Lac Cruces (produces copper cathode) will operate a 90% of design capacity in 2012, total production estimated to increase by 55% versus 2011 (calendar year). In the second quarter of 2012 Andacollo contributed $16.18 million of the comany's $68.84 million in royalty revenue which is 23.50% of the total up from 20.12%. The only other mine that contributed over 10% of RG's revenue is Voisey's Bay (2.7% net smelter return royalty) which gave the company 17.49% ($12.04M) of its second quarter 2012 revenue (up from $8.06M in the corresponding period of 2011). Royal Gold's four largest sources of revenue contribute 56% of revenue (second quarter 2012); total gold production by them was approximately 92,358 ounces of gold (up from 65,862 ounces) 27.4 million pounds of nickel (all from Voisey's Bay) in addition to Penasquito's output of 5.0m oz silver, 40.2m pounds lead, 78.4m pounds zinc. Quarter on quarter increases at Penasquito were mostly from zinc which was up 35.0%, silver was down 100,000 ounces but gold was up 23.8% or 13,052 ounces.


Seabridge Gold - Unlike Motley Fool I take a bullish position on the company. Since January 6 when Motley Fool considered a plunge in the stock Seabridge Gold is up 10% after being down more than 27% over the three months prior. Why has the stock underperformed in the long term? a couple reasons stand out. The spot price for gold is down 11.0% since early September, also down is silver (-29.1%), copper (-27.5% to $3.63/lb from $4.2 in September) and molybdenum. But unlike other metal companies Seabridge's long term valuation is predicated upon development of key mines Kerr-Sulphurets-Mitchell (capital cost is $4.7B) and Courageous Lake (capital cost is $1.26B).

When those projects do reach production-stage the company could become the next Ivanhoe Mines (keep in mind that royalty company Royal Gold has already committed $160m for a 2% nsr royalty on KSM). KSM is 100% owned by Seabridge and has a 52 year mine life (adjusted up in May 2011 from 37 yrs due to reserves increasing by 27% for gold and a whopping 61% for silver) and very low cash costs ($105/yr in the first seven years). Also of note: about half of the world's molybdenum production comes from China and China has at times threatened to limit production by labeling it a "national mining resource," which limits the export of the metal in the same fashion as rare earth elements and China can do that through its control of the China Molybdenum, the country's leading molybdenum producer. Seabridge is also exposed to Molybdenum having 257 million pounds of molybdenum in reserves.

Why have investors suddenly shown more interest over the last week? On January 10, 2012 the Courageous Lake property in the NWT added approximately 1.2 million ounces of gold to measured and

Undervalued Blackberry Far From 'Game Over' (subscribers up 35% to 75 million, competition affects US market share)

   RIM is far from game over as implied by cnn's Paul R. Monica, not that he has a track record for giving blackberry credit when appropriate; for instance no mention of the 33% quarter to quarter increase in bb unit sales up to 14.1 million in the 3 months ended November 2011 (from 10.6 million units in the 2nd, 13.2m in the 1st quarter) putting it in record company territory or the 35% increase in subscribers over the last year to 75 million. (Globeandmail: Holding out hope in RIM’s hometown) RIM is also Canada's biggest R&D investor at $1 billion/year, Canada represents 11,000 of it's 17,500 workforce. It still holds a leading market share in Latin America 25.6% (Sept 2011, ahead of Samsung at 24%), Canada 36% (platforms, ahead of iPhone at 30.1%), Indonesia 46% (Sept 2011, 2nd is Android at 29%) & South Africa 70% (where Nokia takes 2nd place); Latin American share was also quoted as 28% in August (Argentina has all but banned iPhone sales however BlackBerries are allowed since RIM now manufactures in the country). In the UK Blackberry was in a virtual tie for 2nd place with Apple in 2011 after claiming 27.7% of the market (8.5M British BB subscribers). Another feature unique to the BlackBerry: alert settings ! Users are given more control over ringtone and volume settings as compared to the iPhone.

Things looking up for PlayBook! PlayBook now has 15% of the Canadian tablet market which is amazingly good considering it was just 5% five months ago. The change is attributable to losses in market share by Apple's iPad (now 68% from 86%) and the PlayBook becoming more affordable ($300 compared to $500 introductory price).  Later, in February 2012 Wordpress released an app that allows users to update/create blog content from the playbook tablet.  RIM still has a lot of work to do. Only about 1% of the global tablet market is held by RIM however the company is in an enviable position, the tablet market will grow by 43% in 2012 and much of the growth will come from the developing world where demand for BlackBerry products continues to be strong; First nine months of 2011 more than half of RIM's revenue came from countries outside the USA, UK and Canada (58% of RIM revenue which is up from 39% in 2010). Graphs, tables and general BlackBerry information can be found at more on BlackBerry In the first week of March 2012 BlackBerry's PlayBook outsold iPad at Canada's leading electronic retailers, Best Buy and Future Shop.

Rim is not Palm since Rim continues to have a definite market presence not only in America but globally with a 30% market share outside the U.S. (international market contributed $3.6 of $5.6 billion or 64% of revenue in the 1q12; that compares to 53% for Google) versus 9.2% within the USA (down from over 20% in 2010). Abroad, blackberry is particularly popular in Thailand (>33%) and Indonesia (46% up from 40%) where market share continues to grow even without the next generation QNX operating system being applied to any of its products as of yet (remember QNX alone is worth more than a third of RIM's market cap at present, the QNX product is unique, cutting edge with its technology already used by spacecraft and car guiding systems); In Indonesia there are 6 million blackberry users making it the most popular brand, in fact its popularity combined with a half price offering on the $540 Bold 9790 to the first 1000 buyers, was enough to cause a stampede in Jakarta in November; the strong showing for such an expensive phone is also exciting given that Rim has traditionally relied on the US market for sales of its higher end devices. Smartphones are on track to account for as much as 49.6% of all mobile device shipments to Thailand by 2015 up from the current rate of 17%, so as long as RIM maintains a top two position in that market it should see a significant boost to sales in the near future. In an effort to stem any erosion of market share RIM introduced its first touchscreen phone, the Curve 9380.

Update: BlackBerry and Java ME were the only operating systems to gain share during the month of December (keep in mind that Java ME was down for the year while BB was not); The figure considers all mobile devices even the ipad and other tablets (smartphones represent only about 25% of mobile devices worldwide).
Apple and Nokia's problems in Western Europe will give BlackBerry more opportunities which is great news for RIM considering it's not that far behind (1st quarter of 2011 RIM shipped 3.5 million blackberries to Western Europe, enough to give it a steady 16.5% market share in smartphones). 2011 saw a lot of new companies enter the handheld device market, that was enough to bring Nokia down from 1st place (40% share) to only a couple percentage points higher than 3rd and 4th place RIM and HTC (16.5% each), unlike Nokia RIM is holding onto its European market share. Android continues to dominate among operating systems, in the 2Q2011 51.9 million units were sold worldwide which represents 48% of the global market; Samsung led Android device makers at 17M.

RIM sold over 14M smartphones in the just ended third quarter which ties its record high of 14.2M in the quarter ended November 2010 (was about 25% lower than iPhone sales). For the year, Apple sold 70 million iPhones, 30 million iPads and 59 million other products. RIM also continues to attract the attention of major investment firms with NY based Omega buying up 1.43 million shares last quarter. In the just released quarter RIM posted earnings of 51 cents per share ($265m overall) and revenue of $5.17 billion in line with analysts expectations of $5.26 billion (with a 27.3% gross revenue margin/36.3% in the nine months). By comparison Motorola Mobility Solutions (mobile devices) with 38% more market cap, lost 10.7 cents per share (still independent Motorola Holdings with twice the market cap posted only 39 cents per share profit) last quarter while Nokia continues to post losses ($68m, $368m last two quarters, respectively). As of Nov. 26, 2011 total assets are $14.037b up 9.0% qoq with current assets accounting for half of all assets (down 3.8% to $7.2b but still up 20% from August 2010). As for Microsoft (the platform that Nokia has anchored itself to) it had trouble keeping even its 5.8% mobile platform market share.

RIM's encryption security, made even better in 2011 with the addition of Near Field Communications features to Java-based BlackBerry 7 Bold 9900, is so advanced the playbook, Blackberry's answer to the iPad, remains the only tablet endorsed for purchase by the US Federal Government (since July 2011). Additionally, blackberries are ten times more efficient than the competition when it comes to bandwidth usage which is one of the reasons they are doing so well in developing countries like Indonesia, where bandwidth is limited. RIM's leading edge security features

November 14, 2011: BlackBerry 7 phones awarded common criteria EAL4+ Certification meaning that the combination of security mechanisms and product design meets the highest level of accreditation. This applies directly to the BlackBerry® Bold™ 9900, BlackBerry® Torch™ 9810, BlackBerry® Torch™ 9860 and BlackBerry® Curve™ 9360. February 2012: Blackberry 7 operating system receives FIPS 140-2 (Federal Information Processing Standard) certification. The FIPS 140-2 certification for BlackBerry 7.0 and 7.1 gives the company bragging rights when it comes to encryption security. Since the award was granted all of BlackBerry's latest smartphones and Playbook tablet are now all certified by the FIPS program. FIPS is an award issued by the Canadian agency 'The National Institute of Standards and Technology (NIST) and Communications Security Establishments of Canada".

Platform diversity makes it easier for Android to compete BUT in the long term it will lead to new problems
Unlike the competition Rim is still betting mostly on its own devices and sotfware. Google is taking a more liberal approach; as long as device markers comply to the Compatibility Definition Document industry standard, they can use just about anything produced by Android. Platform diversity, something that RIM and Apple are more wary of getting into, is already beginning to have negative effects on Android in the form of Android fragmentation; Multiple phone manufacturers with one carriers apiece, simultaneously supporting more than one active version of Android. That has led to more troubleshooting problems and other hardware & software issues that are increasingly difficult to resolve due to there being less consistency across devices. Also a problem: Google can't address an issue as efficiently as say rim can because google doesn't design the mobile devices. As a result carriers are losing as much as $2B a year from phone returns/replacements; In fact during the 4Q2011 Sprint, the #3 US carrier reported a $1.3B loss, it sold 1.8 million iPhones and added 1.3M more net subscribers. There's also the issue of patents. Any patent infringement charged to Android affects all of device manufacturers that use it including market leaders like Samsung, HTC and LG.

Over the years Blackberry has improved battery life (fewer of the less popular apps, though next generation phones could require more power if they run on multi core processors), zooming/scolling (liquid graphics display), operating system speed (BB7 which runs the Torch 9810, Torch 9860 and Bold 9900 is 40% faster than BB6 and 100% faster than BB5) and screen resolution/display brightness. The company spent $369m on research & development an increase of 3.4% vs 3q2010.

For manufacturers relying on another's platform (Samsung/HTC on Android, Nokia on Microsoft) future patent laws could provide major stumbling blocks to growth; For example in late Dec 2011 Apple was granted a patent that can be used to keep HTC from bringing several of its newer Android products to the American market. That could eventually lead to other similarly used patents, severely limiting growth for companies without their own operating systems. (bgr: Apple’s new app-switching patent could be trouble for Android) Considering Rim is a patent rich company (1400 patents comprising at least $4B worth of intellectual property according to Bank of Montreal analyst Tim Long) it is in an enviable position. Google is also limited in how it handles troubleshooting problems since it doesn't design the mobile devices which run its operating system (one of the reasons Android phone replacement/repairs cost carriers over $2B a year that's much higher than at RIM & Apple. Apple update 1Q2012 - As of end of December 2012 Apple is selling iPhones at a rate of 285/minute. The company has $97.6B in cash and a 65% share of the tablet market (down from 90% a year ago). For carriers like Verizon and Sprint, carrying the iPhone is bittersweet; Since Verizon added the iPhone to its repertoire in late 2010 it has seen its ebitda margin decline to 42.2% from 46.4%, but at the same time it added hundreds of thousands of new subscribers (1.3M at Sprint).

My response to some of Paul's criticism;

Paul "There is no sugarcoating RIM's latest earnings report. The company warned that sales and profits for the next quarter will be far below already reduced forecasts."
Me - Nokia's earnings have reached nil and even google has reported reduced earnings (experienced 29% decrease q2q 1q11) proving that the success of a product is not directly related to earnings. Margins ARE being reduced industrywide (why Apple's iphone4S was rejected by the US's 6th largest carrier US Cellular because the product is not profitable, competition has reduced the profit margins significantly over the last year with new companies HTC and Samsung entering the market). Additionally, RIM's latest quarterly earnings of 51c/share also took into account a $485m loss attributable to unsold tablets & $50m loss due to the October outage, meaning smartphones didn't do all that bad (company's smartphone business makes up just over 50% of the market cap compared to just 2% for tablet division). Don't forget about the last of 2011 when Google's $864 million q2q increase in revenue actually translated into an earnings decline of 0.9% or 21M. In the same quarter, Apple's profits which amounted to more than $13 billion, actually exceeded Google's quarterly revenue by 23.4% ! Apple sold more iPhones during the last quarter than over the entire 2010 calendar year (285 iPhones sold per minute).

Paul "We now believe that RIMM needs to adopt an existing ecosystem (Windows Phone) in order to remain a relevant player in the smartphone market"
Me - Blackberry remains neck to neck with Apple in the corporate market with a near 40% market share. That means that blackberry's operating system is one of only two with widespread use in that market.
On Millenial Networks out of the top 20 handsets the ones that ran on Apple's operating system represented 12.55% of the market compared to 9.72% for blackberry. (Millennial: Android usage doubled iOS in Q3, iPad king of tablets with 456% growth). So blackberry's operating system remains a player even without the QNX upgrade. Blackberry continues to be even more relevant than Nokia and that's with Nokia (and Samsung) relying on other companies to provide them with an operating system (even Samsung doesn't run its own operating system - so if android or windows or iOS face encryption problems Samsung and Nokia can't do anything about it - can't downplay encryption security with 90% of US companies hacked in 2010).
Of the top 5 mobile original equipment manufacturers only Apple gained market share in terms of US subscribers in September versus June (10.2% vs 8.9%) proving once again that Rim is not the only company experiencing market share loss in the US (LG and Motorola lost about the same % share as Rim in the OEM category); but because the US smartphone market is still growing in size company sales aren't dropping as fast as market share would indicate. The reason it's taking RIM so long to bring QNX bb10 phones to market is because RIM has to rewrite the Blackberry Enterprise Server so that it's tailor made for QNX. Don't forget that Apple is losing market share quickly in Europe's two largest markets, Germany and France. Apple's situation in Europe is deteriorating quickly with the loss of patent wars in Germany. Though Android is gaining, particularly in the key market of France (nearing 60% market share), Apple's problems in Europe are giving companies like RIM more opportunity to expand.

Paul - Blackberry is irrelevant evidenced by earnings drop/market share drop
Me - That's an overreaction. All smartphone companies are seeing their profit margins squeezed due to higher competition (average blackberry phone price decreased from $362 in 2005 to $308 in 2010). Blackberry's sales stabilized in the 3Q of 2012 fy at $19.8B annualized (according to Brigantine) while sales of the newest Blackberries released November 15 were seen as healthy by Royal Bank of Canada. The market share drop is limited to just the US market which only accounts for 36% of RIM's revenue. Even so, the market share drop shouldn't be a concern given that blackberry sales remain near record high (quarterly) and subscribers are up 35% to 75 million in just the last year. Also to keep in mind the last quarter included $485 million in losses due to unsold tablets and another $50 million from the outage in October.
It also depends on what region you're looking at. Blackberry remains more popular than ever outside of the US, UK & Canada; Outside of that region revenue is up to $8.24B for the first three quarters of 2011 up 48% from $5.57B in the corresponding period of 2010; Meanwhile revenue from the US market was down 44% proving that BlackBerry's future lies beyond the US market. Without taking the non US market into account it's impossible to properly evaluate RIM.

What's more, Google's 1st quarter earnings drop of 29% (quarter to quarter) was not an aberration, profit in the quarter ended December 2011 fell slightly from the previous quarter ($2705m vs $2728m) even though revenue grew by $865 million.

Consider the 3rd Quarter of 2012
*According to ad Impressions RIM was the only company posing significant threat to Google and Apple in the connected device & smartphone mix on Millenial networks, with a 13% overall market share compared to 56% and 28% for iOS and Android, respectively. RIM also had the 3rd (Curve), 7th (Bold) and 9th (Torch) most popular mobile phones which combined to represent 9.03% of the market; out of the top 20 handsets the ones that ran on Apple's operating system represented 12.55% of the market compared to 9.72% for blackberry. As a manufacturer, RIM ranked 4th overall just behind HTC at 11.05% with 4.6X the market share of Nokia.

*Revenue from outside the USA, UK & Canada up 48% to $8.24B in the first nine months of the 2012 fiscal period. That region now accounts for 58% of total revenue up from 39% last year.

*Sales stabilized at $19.8B annualized for 2012. Sales of the newest blackberry models were healthy according to RBC. Sales of the newest phones don't show up until late 3Q/early 4Q meaning previous quarters didn't realize the full impact.
*Blackberry sales still at near record high of around 14m (quarter ended Nov 2011) with the lowest future forecast of 11 million (quarterly) being only about 25% lower than the record high for a quarter (meaning when bb10 comes to market sales are guaranteed to break into new record territory).
*9.2% of all handheld devices in the United States ranked top 4 ahead of Nokia, Motorola (25% of all mobile sales are smartphones)
*18.9% of all subscribers in terms of platform (study by comScore, quarter ended September 2011), Continues to have a piece of the tablet market (only 1% or 150,000 units shipped/160,000 sold last quarter however with the tablet market growing by 42% to 29 million in 2012 holding onto that 1% could mean higher playbook sales). Worldwide tablet sales increasing to as much as 253 million in 2016. The iPad2 is expected to dominate in 2012 with market share estimates ranging from 69% to as high as 90% (the rest residing mostly with Android devices like Amazon's kindle fire). Sales of RIM's playbook have been lackluster not because of a lack of interest from end users but rather because the big three American retailers Sprint, AT&T and Verizon Wireless have yet to carry it, they say the market for tablets is currently too crowded and RIM will have to wait. That has forced RIM to bear the burden of sales and marketing.

*In the three months beginning 2011 64% of RIM's revenue came from outside the US ($3.6B out of $5.6B) so a hit in its US market share doesn't mean nearly as much for RIM as it did for PALM (another reason the comparison is nonsensical). Sales of Bold 9870, Curve 3G make up a healthy fraction of total sales signifying that the high end market in emerging economies is growing.

*As an investor you have to be excited about the $1.1 billion cash on hand and zero total debt. That's basically the same position it was in a year earlier, on November 26, 2011 when the stock was 4.3X higher at $59.20/share (cash was only $300m higher at $1.435b) and its cash isn't necessarily in a downtrend; between the 2nd and 3rd quarters of 2012 fiscal year (Feb->Feb) cash on hand was up 32%. At $13 a share even the most pessimistic observers have to be somewhat curious about the company considering the sum of its parts could be as high as $15-$18/share. You also have to take into consideration the P/E ratio which is remarkably low for a company in an industry where P/E ratio's average around 16X. Neither Motorola Mobility or Nokia have reported any profit for the past couple quarters though their P/E ratios remain seven times higher than RIM's.

*Blackberry has over 75 million subscribers!!!! 35% more than it did a year ago. Its p/e ratio rock bottom at 3.90 is especially ridiculously low when you compare it to Nokia (20.48) and Motorola (20.52); it suggests that RIM has fallen far behind those companies when in fact the opposite is true; it has maintained market share and popularity (and even some earnings) despite not turning to other platform providers (specifically android and windows) when the going gets tough.
Net earnings at $256m in the three months ended November 2011, that's down from $911.11m the previous year (though sales are stable) but remember all smartphone markers are suffering in the earnings department due to profit margins being squeezed industrywide (carriers like US Cellular have rejected the iPhone4 because of profitability issues). RIM is still reporting hundreds of millions of dollars in earnings, in stark contrast to Nokia which has been operating at a loss for over half a year (-68M, -368M profit in the last two quarters respectively). During the 2011 year BlackBerry was one of only three operating systems to gain overall US market share in the mobile device category, what's more during the last month of the year it was the only one of those three (iOS, Android, BBX) to increase its share.

*In Indonesia, the world's 4th most populous nation, Blackberry remains the most popular smartphone brand with an impressive 6 million users. What's even more exciting is that high end models such as the $540 Bold 9790 'Bellagio', are gaining popularity.

Now on to QNX Blackberry 10 smartphone technology (QNX operating system, QNX technology also known as Neutrino)
*Probable that 1st QNX phones will have their own native e-mail since playbook is getting its own native BES compliant e-mail just before Colt launch.
*Next generation phones also compliant with Android apps making the apps difference (6X more at Android than RIM apps world) irrelevant.
*QNX phones will have a more fluid touch screen than even the iphone due to the application of leading edge technology (with better screen resolution). The Liquid Graphics technology utilized in the Java-based blackberry 7 already gives it seamless zooming and scrolling.
*Thinner than the iPhone, same resolution as the tablet (1024 x 600), similar resolution to the iPhone4S (16/9).

key rim stats (Dec.22 data)

* Share Price: 13.50/share (reached $14/share by the end of Friday Dec.23)
* Book Value: 19.45/share
* Cash on hand: 2.49/share
* Analyst EPS Growth Consensus: -2.61%
* Debt: No Debt
Grmike's advice - Even in liquidation mode the company is not overvalued with its intangible patents (worth as much as $5B), QNX division ($2-3B) and other assets including current assets (cash over $1B). At this point it has to be considered a value stock with high reward/little risk. Considering it still has a growing market share internatinally (30%) and that developing economies are adding millions of people yearly to their middle class (Brazil especially with nearly 20 million added last year) the RIM brand could be in for an upswing even though the US market countinues to be a hostile place for it. The smartphone and tablet market is growing in size at a rapid pace and that makes any amount of market share increasingly valuable. Look for trends in call options, when they pick up don't hesitate to buy a couple. The risk is minimal with share price so low but the reward is high and there are many cases in which a high reward would be realized. Don't underestimate the interest RIM garners as a takeover target now that Motorola is off the market, Nokia is expensive, isn't commited to developing its own independent operating system (Symbian has all but been abandoned in favour of Microsoft), is unprofitable and has no tablet. I think it's very telling that one of Research in Motion's biggest investors to date has been Jaguar Financial, a group whose sole purpose is to "invest in underperforming, undervalued or unappreciated companies".

General Commentary - China recently surpassed the US as the biggest smartphone market in terms of unit shipments (not revenue though) and Nokia still leads there (but with rapidly declining share) meaning that there's an opportunity for RIM to capitalize (if Android's Samsung, LG don't take it). Apple's still experiencing problems in Europe (not as bad as Nokia which got its share cut in half in 2011) with the iOS getting dangerously close to 20% in France and Germany meaning it recorded negative 5-10% growth over the last year, the opposite of what's been happening with Android. In Germany, Android holds 3X the market share of Apple which means a lot since Germany is Europe's biggest market. Germany has been a hostile place for Apple (just look up the patent ruling in favor of Motorola) so it could be a while before Apple makes up any of the share losses.
All is not lost for Apple abroad though. The iOS is still at over 30% in the UK (only European country that's over 30%), Japan (38%), Australia (41% and growing) and of course the United States (36% and growing). South Korea is Android dominant (85% share) while Nokia/Symbian still lead in China and Brazil but Nokia is losing market share fast as it transitions out of Symbian and over to Windows.

other info
71.1% of mobile subscribers in the United States used the text messaging services (September, up from 69.6% in June) and 31.1% of them accessed blogs/social networks (up from 29.1%).

Research In Motion Underappreciated, Underrated & Undervalued (Blackberry, Android compatible QNX phones)

New updated article reflecting the company's position as of December 2011 (including just released last quarter of 2011 which is the 3rd quarter of the company's fiscal year) at Undervalued Blackberry, Research In Motion Far From 'Game Over' (subscribers up 35% to 75 million, competition affects US market share)
The information below only includes company data up to the second quarter (though there's information extending into November).

As of December 22, 2011
* Current Share Price: $14.17/share * Book Value: $20.42/share * Cash: $2.49/share
* Analyst EPS Growth Consensus: -2.61% * Debt: No long term debt AND no total debt

    RIMM continues to lead the way in encryption security (in July 2011 playbook became the first and only tablet endorsed by the US Federal Government for purchase) and with 90% of American companies hacked in 2010 that's got to count for something. (June 23,2011 Survey Finds 90% US Companies Hacked Past Year) Google (oversees Android) is facing an antitrust probe in the USA while Apple is losing patent infringement cases in Germany and that couldn't come at a worse time (in France and Germany Apple is losing market share quickly, in Britain iOS is at 31% up from 21% a year earlier however in continental Europe Apple's products aren't nearly as popular). RIM's earnings continue to be strong despite a boatload of negative publicity (only fell during the quarter ended August to $329M however sales of its newest phones don't show up on the books until the next quarter, prior to the August quarter earnings were strong; the 1st qtr of 2011 down slightly however still up 6.5% when compared to the quarter ended 6 months prior (outside of the United States blackberry sales actually strengthened). The company has zero debt (read that again ZERO) while their cash and cash equivalents are just under $1B (Aug.'11: current assets at $7.32B 22.4% higher than they were exactly one year prior; Nokia's current assets are down). Meanwhile they have yet to implement the highly anticipated/highly recommended QNX operating system (QNX technology has been used in space (space shuttle laser camera)) and shipments of Playbook are over half a million (quarterly, ended May 2011) ranking far behind tablet market leader Apple which sold 9.3 million iPads;

However in the quarter ended August 2011 shipments fell by 60% down to 200,000, a direct result of the popularity of iPad during the quarter which lowered market share for a number of other companies (rimm's tablet remains one of the top choices however Apple's dominant presence translates into a comparatively small market share for other companies to compete for). (BlackBerrys Said to Get Android Apps as RIM Seeks Sales Boost). Blackberry remains one of only a couple smartphone companies with a share in the mobile employees enterprise market (it and Apple dominate that market with nearly 80% of the share, 32% vs 45% in October). The company introduced two new BlackBerry 7 devices on Nov 15 after affecting the largest new product roll out in RIM history in the summer. Initial sales of those smartphones were seen as “healthy” by RBC Capital Markets.

On November 14th (2011) Goldman Sachs raised awareness of Rim's valuable assets by upgrading the stock, citing "the sum of its parts is bigger than the whole". Within 2 days of that rim released 2 new upgraded blackberry 7 smartphones, the Curve 9380 (1st Curve with a touch display) and the BlackBerry Bold 9790, both of which run on bb7 software. In fact Research In Motion was one of only nine technology companies with multiple analyst upgrades in the month of November 2011 (3 as of November 17) - others were Cisco (4), Nokia (2), Juniper (2), CGI Group (3), F5 network (2), Quality Systems (4), changyou (2), Autodesk (2). RIM was upgraded by 3 investment banks; Northern Securities Nov 15 (price target raised to $26 from $18), Goldman Sachs Nov 16 and Brigantine Advisers on the 17th. Brigantine noted that rim is “well entrenched globally” and that "3rd quarter sales stabilized" after falling in the 2q (fiscal 2012 revenue upped to $19.8B from $19.4B). Commentary - I think RIM has a solid chance of making up ground in the US and maintaining strong growth abroad. RIM's main concern right now has to be keeping its high-end/corporate clients from switching to other brands (the corporate market continues to be the core of their business with rim (32.2%) and apple (45%) maintaining a dominant presence). Getting BBX operating system online and a couple compelling devices to market should keep it at the number 3 position, ahead of Nokia.

During the first quarter of 2011 13.2 million blackberries were sold, 71% as much as Apple's iPhone (18.6 million) while the second quarter had sales of 10.6 million; the record for shipments in a quarter for RIM was 14.2 million recorded in the quarter ended November 2010. (betanews.com: RIM ships half million in first quarter) Another advantage RIM has is that only it and Apple both manufacture their own devices and run their own operating systems. It's inconceivable that the company is valued less than Nokia (and more recently even Motorola) which lags behind it in nearly every category of significance (according to Millenial, in the 3rd quarter of 2011 Nokia manufactured only 2.41% of all mobiles phones used on Millenial networks, that compares to 11.05% for RIM; 3 of the top 9 handsets in the quarter ran on blackberry OS, combined they represent over 9% of the market just behind Apple iOS at 12.55%).

QNX systems: With a new innovative operating system on hand, RIM's next major smartphone release could be a significant event for the tech industry. The QNX phone release is expected to be in about half a year, just after playbook gets its own native Blackberry Enterprise Server complaint e-mail; That means the first QNX phones (rumoured to be code-named the BlackBerry Colt) most likely will have their own native e-mail, since the server-code for playbook will probably also be tailor made for the QNX OS. Latest reports suggest that the next generation phones will also compatible with Android apps (though the company has only publicly acknowledged the Android compatability with QNX powered playbook) which should eliminate most concerns over the company's future (Android currently runs about six times as many apps as RIM (250,000 vs over 40,000). Making smartphone battery life last longer can be a difficult task, especially if they run on mutli core processors. BBX, the successor blackberry's current platform will support Microsoft's Exchange ActiveSync (meaning it will support most email systems) as well as Blackberry's own enterprise server (BES) which helps the company maintain current IT clients (IT has invested heavily in BES support infrastructure). New BBX based phones will have the same resolution as the tablet (1024x600) which translates into a resolution (16/9) that tops even the iPhone4S.
QNX technology (Neutrino) is already used in many car computer systems and is one of the reasons Playbook's touch screen interface is so fluid.

To those who bring up rimm's earnings per share drop (estimated to 25% by year end) why even bother when competitors Nokia (zero eps, that's not growth that's total quarterly eps down from 18c the previous year) and google (down 29% q2q in the first quarter of 2011, even with about a third of revenue coming from AdSense) are also profiting less because competition is intensifying and prices are dropping in response (US Cellular recently refused to sell the iPhone4s because according to it the lack of profit created too much risk, another took as long as four months to realize any profit from selling iphones). With regards to Amazon's Kindle Fire, the product has had a number of negative reviews with possibly half of all products shipped in the first quarter of release being returned (cnnfn: How Many Kindle Fires Being Returned To Amazon). Problems related to defective internet Wi-Fi connections are the main concern. Factoring in losses from future content sales, it may be a while before Amazon realizes profit from the device.

RIM has an industry low price to earnings ratio of 3.38 (November 10, 2011, down from 4.21 on July 26, 2011; that compares to 24.3 for Motorola (MSI) (July 26, before acquired by google), 28.7 for Nokia (up from 12.06 July 26), 13.90 for Apple (down from 26.7 July 26) & 20.73 for Google (was 23.5 July 26) meaning that RIM's earnings yield is unusually high, however one must also consider the impact on P/E caused by RIM's lowered future earnings growth rate (earnings in the March to May period of 2011 were 9.6% lower than March to May 2010 (compared to a 128% increase for Apple) however that was at a time when Smartphones were more expensive and Android (available at cheap prices) wasn't as widely used). Also consider that Nokia (P/E ratio of 28.7 which is 8.5X higher than Research In Motion) recorded negative net income in the quarter ended June 2011 (-US $366 million compared to a profit of US $745 million it had in the quarter ended December 2010). In the last quarter of 2010, RIM's net income was only $166 million higher than Nokia's, in contrast with the second quarter of 2011 when RIM profited US $1.061 billion more, making Research In Motion's struggles seem mild in comparison. In the 13 weeks ending November 27, 2010 92% of RIM's revenue growth came from outside of the U.S., in the first 9 months of that fiscal year just over $3.6 billion in revenue came from outside of the U.S. compared to under $2 billion from the U.S. Most of the increase came from sales of the more expensive Bold 9780 and Curve 3G meaning that the high end market in emerging economies is growing.

Blackberry has a number of advantages over competitors that have in the past not been given due recognition (playbook supports Adobe Flash, Adobe Mobile AIR and HTML-5) (India: Rim Launches New Playbook, Says Talks With Indian Govt Are On); When/if the media acknowledges that the company's prospects can only go up. One issue that seems to always come up is software applications (apps) for blackberry which haven't been as numerous, cheap or easily accessible as those available on iphones. Though smart phone users on average only use a handful of them regularly (which blackberry in most cases provides) the competition has been hammering away at it, possibly overplaying the problem. In response RIM has been less restrictive when it comes to allowing android uses on blackberry and has put more emphasis on developing apps. Blackberry phones continue to have superior battery life (when compared to alternatives), that could be one of the reasons RIM's devices were late with regards to specific product enhancements (took longer but the outcome is a more efficient product). In the month of August (2011) Research In Motion released new phones for the first time in a year, the newest blackberry smartphones are the Torch 9810, Torch 9860 and Bold 9900 all of which run on the BB 7 operating system, which is 40% faster than the 6 and twice as fast as the 5. Additionally, they utilize Liquid Graphics technology allowing for seamless zooming and scrolling. Though an improvement, these phones are not considered a major part of the company's future; that responsibility lies with the QNX phones to be released in 2012. According RBC's Mike Abramsky, sales of the new blackberry 7 model could top 22 million in fiscal 2011 out of 54 million total units. The average selling price of the Blackberry 7 phone is estimated to be about $292. (RIMM: RBC Sees Wide EPS Range On BlackBerry 7 Sales) For the third quarter of 2011 (Sept-Nov 2011) revenue is expected to be in the range of $5.3B to $5.6B or about 33% greater than second quarter revenue, that's because sales of the newest phones will begin making an impact (weren't released until the tail end of the 2nd quarter).

Update: According to Impressions, in the third quarter of 2011 Research In Motion was the only company that posed significant competition to Google and Apple in the connected device & smartphone mix on Millenial networks, with a 13% overall market share compared to 56% and 28% for iOS and Android, respectively. RIM also had the 3rd (Curve), 7th (Bold) and 9th (Torch) most popular mobile phones which combined to represent 9.03% of the market; out of the top 20 handsets the ones that ran on Apple's operating system represented 12.55% of the market compared to 9.72% for blackberry. As a manufacturer, RIM ranked 4th overall just behind HTC at 11.05% with 4.6X the market share of Nokia. (Millennial: Android usage doubled iOS in Q3, iPad king of tablets with 456% growth) The first week of November 2011 the iPhone4s was rejected by America's 6th leading carrier, US Cellular on the basis of risk and profitability (other carriers have voiced frustration with this, for some it has taken as long as 4-5 months to realize any profit from the partnership with Apple T-Mobile the 4th largest carrier, also has shown little interest in the iphone). AT&T and Verizon remain the only major US cellphone companies that carry the iPhone. (USA Today)

Market share drop should not be as much of a concern as it is given that there are many more players in the smartphone market than there were in 2008 that's why blackberry continues to record net additions in subscribers. The fact is Research In Motion will continue to be a force in the industry as long as it is remains a leader in both the manufacture of handheld devices (Millenial report: rimm has 11.05% of the market, 4.6X Nokia) and operating system use (9.72% of the market compared to Apple at 12.55%); new market leader Samsung continues to rely on google's Android system.

Despite confrontations with the Indian government regarding BlackBerry security features, on June 22, 2011 Research In Motion successfully launched the BlackBerry Playbook Tablet in India. (Report: Blackberry's RIM Launches New Playbook, says talks with Indian Govt are on) Blackberry smartphones remain popular in the emerging markets of Thailand and Indonesia. On August 29, 2011 RIM and Moviestar launched the Blackberry Torch 9860 in Spain.(Business Report Thailand) Update: In the quarter ended August 31, 2011 RIM's earnings were lackluster (down 58% to $329M vs $797M a year earlier, investors reacted by pushing the share price down by 18%) however not surprising given that the company's only new phones were released at the tail end of the quarter meaning the boost in cash flow won't be realized until the next quarter. Revenue remains strong ($4.2 billion compared to $4.6B a year earlier) with revenue estimated at up to $5.6 billion in the next quarter (3rd). Sales of playbook were down 60% to 200,000 (about what Apple sells in two days) which is not great but not really surprising given the popularity of iPad (RIM remains one of only a handful of companies with growth potential in the tablet market). Blackberry sales were 10.6M in the quarter within range of expectations (around 11 million), Android phones continue to be RIM's biggest threat in the smartphone market while Apple's iPad is the poses the most competition in the tablet market. Intense competition from cheaper products rolled out by Apple and Google is the main reason for the drop in earnings which are lower but haven't dropped to nil like Nokia.

Commentary When discussing blackberry's problems with a friend of mine he said "being better at keeping your problems out of the news doesn't make you a better product", I agree with that. Blackberry's problems seem to be getting a lot of attention lately but when you consider that every smartphone marker goes through an awkward phase/growing pains at some point (motorola, nokia, even apple with a few of their product enhacements) singling out one company lets another off the hook.