Research In Motion's Dangerous Waiting Game
NEW YORK (TheStreet) -- Maybe the best indicator of how far Research In Motion(RIMM) has fallen out of favor is that on a day when the Nasdaq Composite galloped to an 11-year high, shares of the Blackberry maker lost another 2% to close at $16.88, down nearly 73% in the past year.
The main impetus for the weakness on Friday was a downgrade from Jefferies, which announced its move to underperform from hold in a research note entitled, "We Want to Believe ... But Just Can't Yet."
The firm, which also cut its price target by 11.8% to $15 from $17, basically said it doesn't really see any good news on the horizon for RIM, especially if the crux of its strategy is to continue battling it out in the smartphone wars with Apple(AAPL) and Google(GOOG) .
"Our checks indicate RIM will delay and possibly abandon its OS licensing plans and its email/BBM/social networking app in favor of direct competition with Apple/Android," With no near-term positive headlines now expected and with St.
Jefferies had upgraded RIM to hold on Dec. 21, citing valuation with the stock trading below $13 at the time and a belief that the company was investigating potential partnerships and could announce a deal in the spring.
Now, with the stock having jumped more than 25% since the start of 2012, boosted along with many of 2011's other big losers such as Bank of America(BAC) , First Solar(FSLR) , and Netflix(NFLX) , the valuation part of that equation is gone.
Since the upgrade, the company has also named Thorsten Heins to be its sole CEO on Jan. 22, and it's still somewhat of a guessing game which strategic direction he plans to steer RIM. Heins has been meeting with analysts since he took the reins, and Jefferies said it came away from its pow-pow with him impressed with the man but not his near-term strategy.
Instead of seeking to license BlackBerry 10 to Samsung and launching a messaging/email and social networking app for iOS and Android for a monthly fee, the firm expects Heins to present a new plan to RIM's board within two weeks to postpone or cancel those plans and instead "compete head-to-head with the Apple, Android, and Windows ecosystems with their own integrated hardware/software/services ecosystem."
"We believe that an ~1 year delay in licensing BB10 (what we believe to be an excellent OS) is a mistake," the firm said. "We believe decelerating efforts to offer enterprises the ability to get their fast secure Blackberry email on an iPhone or an Android device is a mistake. We want to believe in RIM, but see the near-term risks as too high."
RIM's decision to concentrate on the BlackBerry 10 launch makes some sense, given how much is at stake for the company. The devices will be the first of its handsets to incorporate technology from QNX Software, which RIM acquired in 2010, and another delay of the launch, as was announced in mid-December, would be catastrophic.
But Jefferies believes the company is taking a big risk by taking its time because the competition won't be sitting idle and it won't be just Apple and Google either.
"While we find Heins' telling of his strategy compelling and want to believe in a differentiated non-commoditized OS, by late 2012 iOS and Android will be mature platforms," the firm said. "Microsoft's(MSFT) Windows 8 and ARM support (combined with a recoding of legacy programs to ARM Holdings(ARMH) ) looks set to improve upon its well-reviewed but poor selling Windows Phone 7."
Jefferies continued: "We believe Heins is more willing to license the OS in mid-2013, but with multiquarter development ramp schedules for any potential licensees and continued advances by RIM's competition, we believe a big opportunity may be passing RIM by."
Under the circumstances, the firm doesn't think it makes sense to play the waiting game along with RIM for the next eight months.
"We see limited positive catalysts until BB10 launches (we expect it in September)," Jefferies said. "While it is unlikely to be a superior product, we think it will be very competitive and stack up well against Android and Windows in particular. After the launch we think upsides to estimates, an acquisition, and licensing to third parties all become much more likely (though our checks indicate that licensing is unlikely before mid-CY13)."
UBS was of a similar mind after its meet-and-greet with Heins, noting that it was "refreshing" that he seems more willing to engage with Wall Street than his predecessors but the firm still sees a tough road ahead of RIM over the next two-to-three quarters and wasn't sold on Heins's idea of what it's going to take to turn things around.
"We remain unconvinced that increasing market expenses will win consumer mind share and reverse the waning momentum in the US," wrote UBS, which has a neutral rating on the stock with a price target of $15.50. "While international momentum could sustain, that alone is unlikely to fortify the business model as evident by the challenges of the past few quarters. Success with BB10 in the US will be critical."
At this point, it's fair to ask whether the day when Research In Motion does once again inspire belief -- on Wall Street or anywhere else -- will ever come.
Check out TheStreet's quote page for Research In Motion for year-to-date share performance, analyst ratings, earnings estimates and much more.
--Written by Michael Baron in New York.
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