How Soon Will Research in Motion Die?

The impossibly imperiled smartphone manufacturer has taken another hit this morning as the company reduces its Q3 revenue forecast. Despite shipping approximately 14.1 million BlackBerry smartphones in the third quarter, Research in Motion RIMM still fell below expectations. Morgan Keegan responded by lowering its price target from $37 to $19. Investors responded with both interest and disgust, causing the stock to fluctuate this morning during the pre-market session. Why the interest? I'm not really sure. Apparently some investors like the idea of reduced guidance. Or maybe they were impressed with the PlayBook, which sold a whopping 150,000 units in the third quarter. (If Apple AAPL wasn't scared before, the company should be now!) Sarcasm aside, it seems to me that Research in Motion's problems stem from its reliance on the North American market. Right now, the company is biggest overseas. But with 300 million Americans (and more than half of them carrying cell phones, including children), RIM bought into the American dream. That dream has since turned into a nightmare. Prior to its release, the PlayBook looked like the ultimate iPad competitor. But when the tablet finally arrived, no one cared. After taking it for a spin at Best Buy BBY, I was surprised by how cheap it felt. It was heavy but didn't feel like an expensive piece of equipment. It wasn't as fast or as responsive as I had anticipated. It wasn't intuitive. It didn't have a killer interface. It was, in comparison to the iPad 2, awful. Bear in mind that I say this as someone who does not own or have any plans to buy an iPad 2. When that device was released, I took issue with its lack of innovative features. Regardless, the iPad 2 still has the best user interface around, primarily because it was heavily based on the iPhone and the iPod Touch. Thus, the lack of innovation does not bother most users. But the PlayBook had to be innovative to get our attention. Before its release, only techies and people who didn't like the iPad 2 were interested in the PlayBook. That right there was a red flag. RIM should have been building a device that could excite anyone and everyone. Instead, it simply built a big, clunky device. If tablets were bigger overseas, RIM might have been able to swap out its American losses with some international gains. But the iPad isn't merely the dominating tablet in America – it dominates everywhere. Apple hit the market at just the right time, and with just the right amount of hype. So instead of playing catch-up (as Apple had to do in the smartphone market and soon the TV market), Apple was first in line with a tablet. Previous tablet releases were so insignificant they didn't even matter. RIM will never have the luxury of entering a market in that way. It will never have the benefit of releasing a new product with diehard, pre-existing fans waiting to line up. RIM will, as we have seen all year long, continue to struggle to pick up the pieces and compete in a market it is slowly losing. My advice to RIM is this: take control of the markets Apple can't completely dominate and adjust your business accordingly. The American market is going away, so you can kiss it goodbye already. Emerging markets may provide a new source of revenue, but RIM needs to get there – and work hard to dominate – before Apple moves in. Yes, Apple is big on premium products. But never underestimate its power to convince consumers – rich or poor – that they absolutely can't live without an iPhone. Alternatively, RIM could simply go back to the drawing board and build an innovative product from the ground up. But wait…isn't that what the PlayBook was supposed to be – an innovative product from the ground up? At press time, RIM had dropped 8% in pre-market trading. ACTION ITEMS: Bullish: If you have high hopes for Research in Motion's future, consider the following:

• Jabil Circuit JBL is one of the key suppliers of BlackBerry phones. If RIM has a bright future, JBL should as well.
• Qualcomm QCOM, whose technology has wormed its way into most smartphones, is another leading BlackBerry supplier.
• Finally we have Marvell Technology Group MRVL, which supplies BlackBerry components as well.

Bearish: Investors who are fearful of RIM's future should consider the following:

• Despite the increasing threat of Apple, Google GOOG Android has a very bright future ahead.
• Windows Phone 7 may not have been a smash success, but its user interface was vastly superior to anything RIM developed this year, giving Microsoft MSFT the edge.
• Last but not least, the no-brainer stock: AAPL.

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