ElCid16 (93.92)

RIMM's business is deteriorating. Don't worry - they're spending tons of cash.

December 16, 2011 – Comments (2) | RELATED TICKERS: BBRY , MSFT

In the face of shrinking margins, YOY decreases in revenue, and any ability to generated solid ideas organically, Research in Motion is currently breaking new company records - for spending.

YTD:

Acquisition of PP&E ($713MM)

Acquisition of intangible assets ($1,178MM)

Business Acquisitions ($226MM)

Acquisitions of other assets ($779MM)

and some other crap

Investing Cash Flow: ($2.4 billion)

This is more than double what they spent last year on investing activities (through 3 quarters), while their operating cash flow is down about 40% YOY.  To make matters worse, this year's operating cash flow (which is $1.86B) included a near-double in amortization.  Who's the Motley Fool dude that talks about quality of cash flows?  He might be posting an article here, shortly...

I realize that heavy capital investment isn't necessarily bad, I'm just skeptical about tech acquisitions in general and RIMM's ability to achieve a high ROI on 2011 spending.  Besides, many companies maintain success without upgrading their technology, at all!  (Ahem, Motley Fool CAPS blog.)

RIMM's YTD net change in cash, without dividends or stock buybacks: ($668MM)

Q over Q, their cash has halved.

Their buybacks during 2009 and 2010 ($3B worth) occurred when RIMM was trading at +$50/share.  $3B would buy about 40% of the company, now.  I understand the whole concept of dividend payments for a growth company showing weakness and a lack of business ideas, but this is a classic case of buybacks being an absolute waste of cash.

A (sort of) bullish view and a bunch of "ifs":

If they didn't have the $600MM deficit in NWC this year, they would nearly be breaking even on cash (normally big investing comes with big negative NWC for a year or two).  If investing gets back to normal next year ($1.5B or less), FCF could be around $2B.  If (big if) they can hit $2B per year for at least 5 years, then $7B is a pretty good value.  If their revenues keep deteriorating, maybe $1.5B is a better number - this seems to be what the market is currently suggesting.  (I heard some Wells Fargo analyst predicting $3.5B in FCF next year - she must be expecting a triple from today's prices.  Barring the CEO finding a Genie lamp, I don't see that happening.)  Even if they can hit $2-3B in FCF per year, will they return that money to shareholders or throw it away like they've done in the past?

I realize this is an overly simplistic view - just trying to throw some ideas around.  I guess ultimately I'm trying to decide at what point I'd want to give this cigar butt a shot...

no position in RIMM, long MSFT