Don't Bet on a RIM Stock Rally (Nasdaq: RIMM)

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Research in Motion Ltd. (Nasdaq: RIMM), maker of the BlackBerry phone, traded sharply higher yesterday (Thursday) after Goldman Sachs analyst Simona Jankowski upgraded RIMM to a "Buy" with a price target of $16. RIM gained 4% Thursday to close at $11.54.

Although there are a growing number of bulls among analysts on the Street, there is still a large and vocal group of bears who think that RIM is done for.

Research in Motion is planning to launch its BlackBerry 10 smartphone on Jan. 30, 2013. The company is pinning its hopes of survival on the BlackBerry 10 taking a small piece of the smartphone market away from giants Apple Inc. (Nasdaq: AAPL) and Google Inc. (Nasdaq: GOOG), which split the smartphone market between their iOS and Android operating systems, respectively.

Goldman Sachs' Jankowski says that the BlackBerry 10 (BB10 in the terse to the point of being unintelligible analyst-speak) doesn't even have to be a success for RIMM shares to perform well.

"We now assess a 30 percent chance of success for BB10 given positive early reviews, broad-based carrier support, attractive features, and interest by carriers and consumers in broadening the field beyond Android/iOS," Jankowski wrote.

Other analysts are even more bullish.

Rallying Behind RIM (Nasdaq: RIMM)

Peter Misek of Jeffries & Co. also sees a 30% chance that the BlackBerry 10 will succeed. If RIMM does succeed in grabbing a share of the smartphone market for the BlackBerry 10, Misek sees the shares trading up to $43 during 2013.

Both Jankowski and Misek cite a positive reception from telecommunications carriers who want to break up the duopoly that now exists between Apple's iOS and Google's Android.

"We have been surprised by the strongly positive initial feedback on BB10 from carriers," Misek said in a research report cited by Techvibes, a Canadian technology blog. "We expected a more muted response, given BB10 is two years late and RIM's market share has plunged from 20% to 5%…Our theory," he concluded, "is that carriers see BB10 as one of their last chances to avoid being locked into a long-term smartphone OS duopoly."

Another reason for optimism is technical. According to Techvibes, RIM has developed the BB10 browser to be superior in standardized performance testing, making nearly perfect scores in HTML5 tests and hitting Ring 1 in Ringmark tests, which were developed by Facebook (NYSE: FB) to create performance standards for mobile browsers. This means that developers can build a lot of functionality into BB10 apps and not worry about diminishing the performance of the browser.

This means the app developers can build great apps for the BB10 but, just because they can do it, doesn't mean that they are going to think it is a good idea.

Who can blame them? Recent comments such as Yahoo! Inc. (Nasdaq: YHOO) CEO Marissa Mayer who told Fortune magazine in an interview, "…we are literally moving the company from BlackBerrys to smartphones."

Which means that Yahoo is trading in its BlackBerrys for iPhones and Android phones.

Earlier this month, the U.S. National Transportation Safety Board decided to switch from BlackBerrys to iPhones saying that their BlackBerrys fail "both at inopportune times and at an unacceptable rate."

In October, the Pentagon's Defense Information Systems Agency posted a notice soliciting "…bids for software that can monitor, manage and enforce security requirements for devices made by Apple and Google Inc, with an eye to awarding a contract in April," according to Reuters. The Pentagon said that it will still use a large number of BlackBerry devices but wants to open the door to other suppliers.

Reuters continued, "The Defense Information Systems Agency (DISA) quietly posted its request for proposals on a federal website on October 22, the same day that the U.S. Immigration and Customs Enforcement Agency said it would end its contract with RIM in favor of Apple's iPhone."

With all of these large-scale customer defections, BlackBerry's share of the U.S. smartphone market fell to 1.6% as of October 28, according to research by Kantar Worldpanel ComTech. The study said that RIMM lost more customers to Apple due to the launch of the iPhone 5.

The initial enthusiasm for the shares following the Goldman upgrade was tempered by news that Nokia Corp. (NYSE: NOK) will seek to prevent RIM from selling BlackBerrys in the U.S. Canada and the UK over a patent dispute following a ruling in Nokia's favor by a Swedish court.

That's not good for business.

Playing RIM (Nasdaq: RIMM)

So, what to do with RIMM stock?

The shares closed Thursday at $11.54, up almost 4%, near the low of the day after being as high as $12.30 right after the open.

As much as I like being a contrarian, a 30% chance of success after a 76% rally from the Sept. 24 low doesn't really put the odds in my favor.

By the same token, it won't take much to go right for the current rally to continue.

It's probably best to just walk away and let the analysts fight it out amongst themselves.

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  1. PA | November 30, 2012

    re: As much as I like being a contrarian, a 30% chance of success after a 76% rally from the Sept. 24 low doesn't really put the odds in my favor.

    Don't worry, you can still be a contrarian and recommend RIMM. Analysts have have been completely wrong on RIMM for 6 months, they couldn't be more wrong if they tried.

    If they say 30% chance of success you can bet its closer to 99%, analysts have been dead wrong consistantly , I suspect they will continue that well established trend and pick stock price targets 6 months behind those of us living on planet earth. Be the contrarian, it would have made you a pile of cash on RIMM in the past and likely will in the future.

  2. TS | December 1, 2012

    The point people are missing with RIM's trading range is that it has been discounted to liquidity levels. In other words, RIM's current market valuation is based on the company being worth nothing much more than a series of patents and cash up for grabs.

    Assumptions is made that RIM's current trajectory of 1% market hold of devices throughout the US will continue to take hold for the rest of the world. These are aggressive negative assumptions for a couple of reasons:

    1) The market position in the US does not reflect the current sentiment through the rest of the world. Not everyone views BB OS the same as the US does.

    2) The market position reflects lower numbers due to the sale of BB7. Most of the BB base and those planning on upgrades have deferred their decision to 2013. The subscriber base at 80 million worldwide (and 2 million addition last quarter) marks unanticipated growth in the market.

    3) The pent up demand is expected to see a lot of trade-up from older devices from existing client organization base primarily for a few reasons:

    a) The use of BlackBerry Balance allows an organization's staff to keep IT departments happy by controlling company specific apps on separate from the individual's personal data. The company's data can be easily controlled and wiped from a disgruntled employee.

    b) HID's recognition of the BlackBerry device as a surrogate of the old style security badges used to again physical access to premises using NFC.

    c) The BlackBerry is still recognized as the strongest encryption system over corporate data.

    4) Even if RIM were to have mild success with the BB10 device current sales we would still expect market valuation to add between $5 – $10 to the current trading range or $16 – $22. In other words, today's trading range has not even begun to price BB10 into the NAV of the organization.

    Strong success in the BB10 OS would suggest a trading range between $40 – $50 in 2013.

    RIM is doing some fairly exciting work on enterprise data management that is beyond the scope of simply a consumer entertainment device. Work in the area of IT management – BYOD, integration and applications in areas such as automotive and healthcare is reason to be excited about RIM's future.

    The current mixed sentiment among analysts is derived from the fact that many have played off RIM's weaknesses for the past 2 years or more. They have used RIM's lack of proper execution and missed deadlines to support and leverage their aggressive calls on Apple and Samsung. RIM's recent rally have caught some off guard and at a lost to further support their position on RIM that helped drive trading below book value in recent months.

    As a last ditch effort, words such as "RIM's BB10 is expected to be DOA" have been used to propel negative sentiment that is no longer sticking in media and press releases. Those who have been watching RIM closely for the past 2 years looking at prototypes and looking behind the numbers will understand the analysis is without merit.

  3. Carl Ward | December 2, 2012

    The expert calls of boom or doom for RIM lack one advantage I enjoy.
    I live in RIM country and see no signs of gloom.
    On the contrary, from execs committing themselves to local investments and Canadian citizenships to the company apparently holding on to all of their facilities and stock they look very confident to me.
    Not incidentally, there has been no unusual insider trading and some local financial advisors were even daring to get clients back into RIM before their own gurus put RIM on their buy lists too.

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