Shares of Research In Motion ( RIMM) took off on Tuesday after the company announced a settlement in a long-running patent dispute. But look for shares to continue to rise. The company's stock hit triple digits in December on what turned out to be a wrong impression that it had won a decision in the patent case. With the anchor of the proceedings now out of the way, the company's stock will likely return to those heights, some investors and analysts think. "When will it
return to its highs ? I have no clue. Will it happen? I have no doubts," said Jay Somaney, a portfolio manager with TSG Capital Group, whose fund is long RIM. "I'm glad this thing is out of the way." Other analysts were less cautious than Somaney on the timing. The stock will likely return to the $95-to-$100-a-share range in the near term, said one buy-side analyst, who asked not to be named. And the stock could go beyond that if the company beats expectations and raises its guidance when it reports its earnings next month. "I don't see any reason why it doesn't get back up there," said the analyst, whose firm recently went long on RIM. In recent trading, shares of the wireless email device and service provider were making a strong move up, rising $12.03, or 17.9%, to $79.12. The settlement announced Tuesday involves a lawsuit filed by holding company NTP. NTP had charged RIM with violating a series of its patents related to wireless email services. The company had won two court decisions against RIM, the most recently in December, when an appeals court upheld most of NTP's claims against RIM. Under the settlement agreement, RIM will pay NTP $450 million to settle all past and future infringement claims. The wireless messaging company had already placed about $137 million in reserve related to settling the dispute. RIM plans to expense much of the remaining $313 million in its fiscal fourth quarter, which ended last month.
Although the settlement offer is a significant amount for RIM, the outstanding balance represents just a third of the $814 million in cash and short-term investments the company had on hand at the end of its third quarter. Indeed, many analysts were worried the company would have to pay far more, including a hefty ongoing royalty fee. Had NTP prevailed in the case, it could have barred RIM from offering its services anywhere in the U.S., which is by far its most important market. NTP "could have gotten more," said one analyst at an independent research shop, who also asked to remain anonymous. "$450 million is nothing to RIM." "They could pay $1 billion and probably go out and raise more tomorrow," added the analyst, who has no position in RIM and whose firm does no investment banking. The fears about the lawsuit helped send RIM's shares
spiraling downward . The company's stock hit $103.56 on the day of the December appeals court ruling, but ended up closing at $85.44. As recently as Friday, the company's stock was trading near $60. In addition to the lawsuit, bears have been playing up the competitive threats to RIM. On Friday, for instance, Good Technology, the company's chief rival, signed its own licensing deal with NTP, a move that had the potential to strengthen NTP's position in its dispute with RIM. Nokia ( NOK) has also licensed NTP's technology, and many analysts have feared Microsoft's ( MSFT) potential in the wireless email market. But bulls have dismissed the competitive threat in the past and thought little more of it after the settlement announcement on Tuesday. RIM has consistently beaten Good Technology to date, and Nokia has yet to come out with a competing product, they noted. "The bottom line is that the market is growing," said the buy-side analyst. As long as RIM provides a good product, they should get their share. I don't see Good or Nokia growing faster than RIM."
Meanwhile, the competitive threat from Microsoft may be more hype than reality, analysts said. The software giant has an ominous reputation, but of late doesn't have a great track record of succeeding in new markets, said Somaney. "It's stupid to ignore the potential threat (from Microsoft), but nine times out of 10, there's a whole lot of noise and nothing else," he said. For Microsoft to get in the game, it likely will have to sign its own licensing deal with NTP, noted the buy-side analyst. But unlike RIM, which gets the bulk of its revenue from device sales, Microsoft will likely have to try to cover those licensing costs with just software sales, which may prove to be a difficult proposition, the analyst said. With the lawsuit out of the way and the competition a nonfactor to date, all the main obstacles are out of the way for RIM, bulls argue. "I don't think anything is stopping them now," said the independent analyst.