Worried about RIM

I suspect that, most days, I make errors in judgment of some form or another. Rarely do they hurt, fortunately, and we all hope to learn from previous mistakes. Like the time I made a U-turn on Wellington Street in 1991 without first looking; a Korean-made sedan hurled into my front left quarter panel and looked much the worse for wear after the encounter with my Pathfinder. I lost little more than a turning signal, but his repair bill wasn’t small. His front and rear doors were smashed in. Haven’t made that mistake again.

A few weeks ago Fabrice Taylor sounded the alarm about the state of the world at Research In Motion (RIM:TSX). He was focused on weakening gross margins, and wondered why RIM continued to spend so much on R&D and so forth. As a long time RIM fan and shareholder, I read the piece with care and wondered if there was anything in the analysis that should cause me to jump for the exits.

Despite the positive reports from Equity Research Analysts, and growing earnings, one can’t ignore the fact that RIM shares are almost flat on a 1 year basis, and down more than 30% on a 2 year review. For a buy and hold investor, you’ve got to have held RIM since June 2007 to have made any meaningful money.

Having sold RIM (at a profit) two or three times over the past 8 years, I can tell you that I had vowed to never sell it — ever again. I was forever having to buy it back at higher prices later. Trading it is different, as there are just so many opportunities each year to do just that. But exiting completely? Never works.

Inertia has prevailed for now, but at least it was considered inertia.

And yet the new RIM print advertising campaign is giving me butterflies. Hiring U2 to front the product a few months ago seemed sensible enough: want access to consumers? Get one of the best consumer brands in the world. Besides, Jimmy’s a fan of the rock world.

Of late, though, the online world is replete with RIM advertising. Maybe I hang around their target sites (NYT, for example), so that in and of itself shouldn’t be a concern. But, the penny dropped for me today when RIM ran two full page ads in the front section of the Globe & Mail; home of the very same Fabrice Taylor. The very paper that, just a few years ago, unfairly questioned the charitable bonafides of RIM’s Co-CEOs.

This can’t be a good sign for shareholders. Not that RIM has made peace (the industrial league hockey story was the initial white flag), but that RIM thinks there’s a single adult reader of the Globe who hasn’t heard of the company, its product, or what it’s like to be connected to the world via wireless email.

This can’t bode well for momentum in the consumer market, can it?

I know that smartphone penetration still has a huge amount of room to grow, and RIM will soak up volume without needing a new “Gaga” device; but perhaps it is time to do the pair trade of RIM and Apple. Might be time to throw in the towel on this solo strategy; why pick between the two? Just own both.

MRM
(Disclosure - I own RIM)