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Shareholders mingle before the start of the BlackBerry maker's AGM in Waterloo, July 12, 2011. (J.P. MOCZULSKI For The Globe and Mail)
Shareholders mingle before the start of the BlackBerry maker's AGM in Waterloo, July 12, 2011. (J.P. MOCZULSKI For The Globe and Mail)

Analysis

Do Canadians who follow RIM take pity? Add to ...

Wall Street and Silicon Valley have issued verdicts on Research In Motion Ltd. , and they are mostly damning for the BlackBerry maker. Canadians, on the other hand, are eager to give their compatriot the benefit of the doubt.

In both the smart phone and tablet computer markets, the momentum belongs to Apple, which edges ever closer to the title of world’s most valuable stock, and Google, its Android software embraced by an army of device makers.

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By contrast, RIM’s shares have fallen 60 per cent from a February peak, hammered by a litany of bad news. The company has missed its own limp quarterly forecasts, suffered crucial delays in bringing advanced smart phones to market and elicited yawns when it launched its long-awaited PlayBook tablet.

In the latest sign of decline, RIM said on Monday it will cut 11 per cent of its work force, even as it rushes to pull off a tricky transition to a new Blackberry operating system.

Against that backdrop, there is a discernible gap between Canadian and non-Canadian analysts covering the struggling Ontario-based technology leader. Put simply, the Canadians have a lot more time for their national champion.

One in five analysts covering RIM currently suggest buying the stock. But the ratio is one in three for Canadian analysts, and many Canadians think the stock selloff is overdone.

“The pessimism of the big U.S. bulge-bracket firms is really what presumably has driven the stock to the levels that it’s at,” said Paul Taylor, chief investment officer for BMO Harris Private Banking. The Bank of Montreal unit manages $14.5-billion for wealthy Canadians and holds less than $100-million of RIM stock.

“It irks them to think a Canadian company could possibly have the backbone to compete with the likes of Apple,” said Mr. Taylor, who clearly thinks investors aren’t giving RIM a fair shake.

RIM has long been a source of Canadian pride, a start-up that beat giants like Ericsson and Motorola to make the BlackBerry’s secure mobile e-mail an essential tool. Now a global firm with billions in quarterly sales, RIM faces a new generation of users besotted with its touch screen rivals.

Still, Canadian enthusiasm runs deep. A prime example is Scotia Capital’s Gus Papageorgiou, who kept an “outperform” rating on RIM since before the iPhone launched in early 2007.

Mr. Papageorgiou’s price targets since early 2009, on average, were 80 per cent higher than the stock’s close that day.

Just before RIM issued disappointing quarterly numbers and a weak outlook last month, leading to the stock’s sharpest one-day decline in years, Mr. Papageorgiou forecast a price above $80 a year later.

Even now he expects the stock to trade at $57 in 12 months, while at least six U.S. firms (and one Canadian bank) see it staying under $30. The average target is $38. The targets differ slightly depending on whether the Nasdaq or Toronto-listed stock is quoted.

Mr. Papageorgiou declined to comment for this article.

Not everyone has held on so long. At RBC Dominion Securities, analyst Mike Abramsky abandoned his “top pick” rating in April and slashed his target price to $55 from $90. Two months later he dropped it to $35 and this month he urged RIM to split into two separate businesses.

FEW RIM BEARS IN CANADA

Opinion is sharply divided on RIM’s long-term prospects. The company, which earned $6.34 a share in the financial year to late February, is expected to make between $4.10 and $6 a share this year, after it abandoned a $7.50 target in June.

Seven of the nine Canadian analysts expect RIM’s earnings for fiscal 2012 to beat the average of all 55 analysts covering the stock, a bias some see as difficult to shake.

“You find a few bulls on RIM in the U.S. but you generally don’t find many bears in Canada,” said Eric Jackson, founder of hedge fund Ironfire Capital, which covered a short position -- a bet that the price will fall -- in RIM a few weeks ago.

“I think there is more hometown bias ... than they realize in Canada.”

To be sure, not everyone agrees it’s the Canadians who have misjudged RIM.

“The Canadian investors have far more of a global picture in terms of what is driving RIM’s business,” said Geoff Blaber, a London-based analyst at CCS Insight. “A lot of the U.S. investment analysts can be somewhat focused on what is happening on their doorstep.”

RIM is finding the United States a particularly tough market as its leading position withers in the face of an onslaught from Apple’s iPhone and then the phones Android.

Verizon, once a predominantly BlackBerry service provider, turned its attention to Android-based handsets from Motorola Mobility and HTC in late 2009.

ANOMALY OR LEADING INDICATOR?

It remains to be seen whether the United States, where handset subsidies hide the upfront costs of expensive phones such as the iPhone, is an anomaly or a leading indicator.

“The reality for RIM is probably somewhere in between what those investors are seeing,” said CCS’s Mr. Blaber. “They’ve still got a lot of questions to answer.”

Shareholders lobbed tough questions at RIM executives at a July annual meeting held near RIM’s headquarters in Waterloo, a university town 90 minutes drive from Toronto. But they also appeared generally content with the responses.

In Waterloo, it is easier to blame outsiders for RIM’s troubles than to turn on RIM’s management, which narrowly avoided a vote on whether co-chief executives Mike Lazaridis and Jim Balsillie should relinquish their other shared role as board chairman.

“What I find ironic is that analysts who are sitting in this room will criticize this company while typing out that criticism on a BlackBerry,” one shareholder said to laughs from the audience, “And I think that that’s the most self-serving, most despicable activity on this planet,” he said.

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