Resurrection for RIM?

Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Friday’s abbreviated trading session saw shares of beleaguered smartphone maker Research In Motion (NASDAQ: BBRY) surge by over 13%. The catalyst for the move seems to have been the increased price target of $15 placed on the stock by National Bank analyst Kris Thompson. As the company that once owned the market struggles to survive against rivals like Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG), early indications suggest that RIM’s new user interface and operating system are showing promise. Still, as the new Blackberry 10 devices will not be available until the spring, the question becomes if mere promise is sufficient reason to take a chance on the stock.

Price Action

While the shortened week saw the stock rise by roughly 34%, RIM is still trading down 25% this year, having been all but written off by many investors. Yet the company has been able to maintain some true fans within the professional investing community – Prem Watsa’s Fairfax Financial Holdings, Jim Simons’ Renaissance Technologies and Andreas Halvorsen’s Viking Global have maintained significant positions in the stock. Institutional support can be critical to a company, particularly one trying to re-emerge from as drastic a slide as has been experienced by RIM, but it is important to remember that each of these investors can afford to lose the entirety of their investment in RIM without suffering a drastic draw-down.

By the numbers, RIM saw strengthening operating results in the most recent quarter, but both revenues and earnings still showed significant declines on a year-over-year basis. The company is not likely to be profitable during its current fiscal year, meaning that an investment in the stock is a bet on a turnaround in the future. Even with the relatively cheap nature of the stock, RIM still belongs in the purely speculative category.

The Challenge

Where the Blackberry was once considered the gold standard of smartphones, earning the nickname ‘crackberry’ because of the device’s addictive nature, RIM failed to keep pace with the new wave of innovation sparked by Apple’s iPhone. Even upon the introduction of the iPhone, Blackberries maintained a reputation as the go-to device preferred by business professionals; iPhones were interesting toys, but were never considered a real threat. Clearly, RIM’s inability to react to the new paradigm ushered in by Apple has cost the company.

This is the knowledge and strategy that has allowed Google’s Android to become the most used platform on the planet. Depending on your beliefs regarding the barrage of patent litigation, you either believe that Google’s device makers straight copied or simply “followed the concept of” the iPhone, but it is the touchscreen user interface that drives business in the sector. Blackberry was essentially absent from this development, joining too late with products that could not compete.

In a recent review, Andrew Orlowski writes favorably of the new system put together by RIM: “Once you've got used to it, and that the Hub is the home screen, BB10 is by some distance the most brutally efficient multitouch interface I have used so far. It makes the others look like hard work.” The author acknowledges that the company has a long road back to the limelight, specifically citing the need to ensure that the hardware is as slick as the user interface. If both of these things can be accomplished, RIM may become interesting again.

The Trade

The single largest challenge for RIM at this point is to be given a chance. When a company’s image has been as tarnished as has RIM’s, you must wonder how many users will actually look at a Blackberry before making a purchase decision. In an era in which what phone you carry reflects your status as much as the car you drive, RIM has an image to restore. If the company can convince the business community to even consider returning, there may be hope.

In addition to the image problems facing RIM, timing has not been on its side. The Blackberry 10 series has faced repeated delays and will miss the critical holiday season yet again. While I think keeping an eye on the stock is prudent, given its once unrivaled status, I am not ready to own the stock just yet. If acceptable hardware is rolled out, it may be too late to buy, but this far ahead of the expected release, I am not a buyer.

Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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