I know my previous article said to buy RIMM which changed its name to Blackberry. However, times change, and we must change our views accordingly. Also, I made some silly errors in my last post. So let us delve right into it.
Regarding the financial statements, Blackberry is as strong as ever. On the balance sheet the company has no debt and lots of cash. Income statement in the last few quarters has been all losses but modest losses. When a billion dollar enterprise losses 10s of millions of dollars, it's a bad quarter but we have to look at why as the losses are not significant. Even if the free cash flow was positive (I didn't even look for it) I would ignore it because of net income being negative.
So why am I telling you to sell Blackberry at about a 10% loss? The first thing I say is if a company cannot be expected to make huge profits (at least double your money) don't buy it, and if you own it sell it. Admit your mistakes quickly. That way you can buy something else that will double your money. And in the long run a 10% loss is nothing, but losses should teach us something no matter how small the loss was. So that is the first thing you gotta think about. I think Blackberry at the moment offers very little profit.
Now why do I think that? First I do not like their new phones. By the way, I'm a huge fan of Blackberry. I should probably be institutionalized for it. The phones are awful. You have the Blackberry Z10 which is a 4.2 inch phone with a 1.7 GHz dual core processor and 2GB of RAM. Not a bad phone by itself but the Nexus 4 which comes unlocked and at a price of $300 to $350 is a 4.7 inch phone with a 1.5 GHz quad core processor and 2 GB of RAM. Blackberry Z10 price is at least $500. You may say the phone companies give you discounts, but they don't just give it for the Z10, they also give it for the Nexus 4. So they cannot really compete with it. Apps may be another issue, but being able to port Android apps may help. However, not enough for me to say I would want that phone.
They also came out with the Blackberry Q5 and Q10 phones. These are the most promising. The reason I say that is that the keyboards make them unique as most phones are full touch screens. However, this means the phone is large but the screen is small to the tune of only 3.1 inches. The screens are touch but what can you really do with 3.1 inches? The Q10 is a dual core with 1.5 GHz and 2 GB of RAM whereas the Q5 is 1.2 GHz dual core with 2 GHz of RAM. Not bad. The idea was good but the pricing was awful. The Q5 is $350 in Canada whereas the Q10 goes from $600-$700. Considering the Q5 is supposed to compete with the cheaper phones, why is it priced higher than the technically superior Nexus 4? In my opinion the pricing is what's killing Blackberry right now. These are not superior phones. These are mid tier phones and in the case of the Q5 a low tier phone and prices should be ruthlessly slashed. Another warning I want to give investors is regarding pricing of products. Peter Lynch once noted that the closer a product is to a finished product the faster the price declines. So an out of style dress which once retailed for $300 may not sell for $3 now. Whereas the material to make it such as cotton probably has not fluctuated a lot in price. So typically it is safer to invest in products that are further away from the consumers. Ironic considering all the stocks I have recommended have been very close to the finished product.
So we do not know what the next product will be for Blackberry. Hoping it will good enough to save the company is just pure speculation. And Benjamin Graham always knew that investing is better than the speculation. I apologize for the loss and sincerely hope I do not make too many of these. Next topic is a bit cheerier, HPQ. Remember I recommended it a while back? It's an interesting company and one I intend to discuss. So sell Blackberry, I'm sorry and we'll discuss HPQ next.
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