After spiking upwards on takeover rumors over the past few days, shares of
Research in Motion
suffered a double-digit drop in Tuesday trading. The slide took place amid increasing doubts that RIM will actually be acquired, as well as a downgrade from an investment bank because shares have gotten too pricey.
In related news, after the close came word that RIM will be allowed to keep selling its popular BlackBerry handheld devices while patent litigation is decided, in a decision from a U.S. District Court. Last November, a jury ruled that RIM had infringed on the patents of
and ordered RIM to pay damages that now stand at $53.7 million.
Jim Wallace, an attorney for NTP from the firm of Wiley Rein & Fielding, says today's court ruling contains "nothing we didn't fully expect. But it does lay out the road map for what happens to RIM if they don't win on appeal," referring to the damage award and to a potential order to make RIM stop selling many BlackBerry models.
RIM is expected to appeal in a process that likely will continue for another year or two. The company didn't have an immediate comment on today's court ruling.
In regular trading, the stock closed down $3.16, or 11.2%, to $25.12. It kept falling after hours, losing another $2.62, or 10.4%.
"Because the stock was up about 30% in the last three sessions, I think the air's coming out of the rumors right now. That's probably what's going on," says Michael Abramsky, an analyst at Canaccord Capital, referring to the continuing after-hours stock drop.
To some degree, the court ruling is a positive for RIM, he adds. "There was a lot of concern that RIM would have to stop selling, period. I think that's no longer the case."
Today's release, he said, seemed to suggest that RIM "can continue to operate and run a business as long as they pay into escrow the damage the court has ordered them to pay NTP."
His firm doesn't do banking for RIM.
Interest Stays High
Earlier on Tuesday, a research note from Canada-based Scotia Capital bank downgraded RIM shares from sector outperform to sector perform, saying the shares are overvalued after climbing 26% in the prior two trading session.
Scotia analyst Gus Papageorgiou also cast doubt on takeover rumors which have suggested
as potential suitors.
"Although all could likely profit from an acquisition of RIM, we do not believe senior management (which owns between 20% and 25% of the company) is a willing vendor," writes Papageorgiou in a note. "At its current price, we believe there is more near-term downside risk than upside."
Scotia hasn't done recent banking for RIM.
But despite the downgrade, he's still bullish on the company's prospects. "We continue to expect the company to report consistently higher revenue and profitability over the next seven quarters, and believe that global adoption of the BlackBerry platform will extend to more subscribers, wireless carriers, enterprises, and devices," he says, noting that his own estimates for the upcoming fiscal year are well above the Street's.
He estimates RIM can earn $1 EPS in fiscal year 2005, which will kick off next May, compared to the Thomson First Call consensus estimate of only 33 cents.
But at least one other analyst dramatically raised his profit outlook for the company on Tuesday. On the same day that Scotia downgraded the stock, UBS Warburg tripled its profit estimate for the company for fiscal year 2004 and doubled its estimate for fiscal year 2005.
Analyst Jeffrey Schlesinger says he now expects the company to earn 21 cents in FY2004, up from a previous estimate of 7 cents; meanwhile, he hiked his 2005 estimate to 70 cents from 34 cents. The reason: He says conversations with RIM's channel partners and vendors suggest its new handhelds are in high demand in North America, which marks a switch from what he calls the "tepid reception" for new products last year at this time.
"We believe RIM has ramped hardware production, which we think is a potential signal for demand, particularly in light of operators' unwillingness to take unnecessary inventory," he writes.
Still, Schlesinger is keeping his neutral weight rating. Calling the takeover notion unlikely, he says the stock could trade down to the mid-$20s. UBS hasn't done banking for RIM.