RIM's Landing Point Uncertain - TheStreet

Shares of

Research in Motion

(RIMM)

have taken a beating in the last three months. But has the former highflier become a bust or a bargain?

That's the debate right now among investors and analysts. Bears point to increased competition, a tough market for tech stocks and the potential for an unfavorable outcome in a patent dispute. Bulls, of course, think many of these concerns are overblown and that RIM's big market opportunity overseas is underestimated.

In the middle are investors trying to figure out whether to get in on the stock. One buy-side analyst, for instance, agrees that RIM's critics are making too much out of the company's obstacles. But his firm hasn't taken a position in RIM and the analyst is not convinced that now's the time to do so.

"The stock's been volatile. I don't know where it settles out," said the analyst, who asked not to be named, saying he doesn't see any compelling reason to acquire a long position. "There's no 'got to buy it now' news," the analyst said, adding, "You don't want to buy stocks with downward trending charts."

RIM's shares are off 22% this year. They closed up $1.93, or 3.1%, to $64.15 on Tuesday.

This uncertainty on Wall Street about RIM's stock was highlighted by conflicting reports from the sell-side this week. On Monday, Piper Jaffray analyst T. Michael Walkley cut his rating to market perform from outperform and his price target to $75 from $100, citing indications of slowing sales and increased competition.

A day later, JP Morgan analyst Jeffrey Schlesinger reiterated his buy rating and $95 price target on RIM's shares. Schlesinger said his checks indicated that the company is continuing to see strong sales and argued that the competition is going to face a lot trying to unseat RIM.

What a difference a year makes. RIM's stock was one of the top performers in 2004, ending the year up more than 145%. Driving the company's share gains was its rapidly improving business.

The company's BlackBerry devices and software allow corporate employees and executives to access email remotely. With the number of BlackBerry subscribers more than doubling last year to 2 million, RIM's revenue jumped 145% in the past 12 months, helping the company reverse its bottom line from a $20.8 million loss over that time period to a $257.5 million profit.

On the whole, Wall Street thinks the company will continue to post standout growth. Excluding ongoing litigation costs, the consensus among sell-side analysts is that RIM's per-share earnings will grow 38% in its recently begun 2006 fiscal year, while its sales will jump 53%, according to Thomson First Call. Even over the longer term, analysts are projecting 20% earnings growth.

But RIM faces some important challenges. NTP, a patent holding company, has sued RIM for infringement in the U.S., RIM's most important market, and it has won two rounds in the courts. In the latest ruling, an appeals court in December upheld most of the claims against RIM, but sent the case back down to a lower court to reconsider parts of the case and the penalty.

Additionally, competitors ranging from giants like

Microsoft

(MSFT) - Get Report

and

Nokia

(NOK) - Get Report

to smaller companies such as

PalmOne

(PLMO)

,

Good Technology

and

Intellisync

(SYNC) - Get Report

are trying to eat into RIM's market. In recent months, for instance, both PalmOne and Nokia have signed deals with Microsoft to use its software to connect their devices to Microsoft Exchange servers.

Rumors also have been circulating that PalmOne will introduce a new Treo smartphone running on Microsoft's Windows Mobile operating system. Assuming it's linked to Microsoft's email servers, such a device could hurt RIM's sales.

On the day of the NTP ruling in December, RIM's stock fell more than $20 off its high. Since then, the company's stock has continued to drop as investors and analysts have focused on the competition and as other high-growth tech stocks such as

eBay

(EBAY) - Get Report

,

Qualcomm

(QCOM) - Get Report

and

Yahoo!

(YHOO)

have been taken to the woodshed.

But some investors and analysts believe the selloff has gone too far. At current prices, the company is trading at about 23 times its projected pro forma earnings for the current year.

"That's not expensive by any means," said Jay Somaney, a portfolio manager with TSG Capital Group, whose firm is long shares of RIM. "It's cheaper than a lot of these tech names."

Although the company's critics fret about the competition, RIM's rivals aren't any more of a threat than they were three months ago, when the company's stock was trading north of $90, Somaney and other RIM bulls say. Most of RIM's competitors -- at least on the device side -- seem to be pursuing the consumer market, analysts say. But most of the market for mobile email services so far is in serving corporate customers, they say.

In its core enterprise market, RIM has a significant lead over rivals, company bulls note. JP Morgan's Schlesinger, for instance, estimates that RIM's BlackBerry software is running on about 40,000 servers, compared with just 4,000 running Good's software. Those technology managers who have already installed the BlackBerry's service are likely to be resistant to switching, Schlesinger said.

As for its patent dispute, even if RIM loses, the effects will likely be minimal. Rather than forcing the company out of the U.S. market as some analysts have worried, NTP -- which isn't an operating company -- will likely go away with some incentive.

In addition, much of what RIM might have to pay to NTP is likely to be passed on to cellular network carriers and end users, said the buy-side analyst. With those costs probably set to run less than $30 a device, they're not likely to dissuade a lot of customers, the analyst said.

Skeptics also are ignoring RIM's overseas opportunities, bulls say. The company has repeatedly added additional carrier partners to its portfolio and plans to introduce its services in some 20 to 30 new countries each coming quarter.

"I really think that people are looking too close to home, and not looking enough at overseas," said Scott Rothbort, president of LakeView Asset Management and a contributor to

TheStreet.com's

sister Web site

Street Insight

. (Rothbort is long RIM.)