Investors are conflicted about where Research In Motion Ltd. RIM-T is going and what the shares of the BlackBerry maker are really worth.
Some bet that the company is bound for greater things and the stock will cross $100 (U.S). in the next year. Others question whether Canada's biggest technology star has lost its lustre to rival Apple Inc. AAPL-Q, and suggest RIM shares are worth close to $50.
The breadth of estimates is larger than usual for a stalwart tech player, as is the short selling activity on the stock. Investors have widely different perspectives on the value of RIM's technology and strategy, suggesting that the company itself has failed to address misperceptions effectively.
Investors are much more aggressive in shorting RIM shares than those of its rivals, including Apple, Motorola Inc. MOT-N and Nokia Corp. NOK-N One measurement traders use to assess sentiment on a stock is the short interest ratio, calculated by dividing shares sold short on expectation of lower prices by the average daily volume of a stock. For RIM this ratio is 8.2, for Nokia it's 5.5, for Motorola 1.9 and for Apple, just 0.96.
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RIM's short interest ratio is also greater than the average of other technology stocks in Canada (0.87) and the United States (3.6). What this means is that a greater percentage of RIM's float has been shorted than its rivals, and that there will be a bigger upswing in the share price if the stock starts to climb. At current levels, it would take short sellers 8.2 days to close out their short positions based on the average daily trading volume.
Yesterday, Pierre Ferragu, a senior analyst with Sanford C. Bernstein & Co., published a detailed assessment of RIM's future. In the short-term, he sees some upside for the stock, in part because of RIM's international growth, and he raised his share profit estimate for the last quarter by a few cents (RIM reports March 31). But longer term, he says the company is overly attached to technical successes of the past as it designs its future products, and therefore likely to lose the advantage it's held over rivals for the last decade.
"The breakthrough innovation of 10 years ago rarely makes the breakthrough innovation of today, and the company's current strategy is too centred on leveraging in today's changing environment what made BlackBerry so strong in the past," he wrote.
RIM won a near-monopoly in the corporate and government mobile e-mail market by designing a system smarter than its competitors. RIM's design involves running traffic through its own network operating centre (NOC), which brings greater efficiency to the flow. The NOC's notification system for alerting devices when new e-mails are available, plus its ability to strip away unnecessary information in messages, helps make a BlackBerry about 10 times as efficient in bandwidth usage as an iPhone, Mr. Ferragu says.
One reason the BlackBerry has thrived is because it was designed to use a scarce resource very efficiently. Today, however, wireless bandwidth is getting much less scarce as phone companies put new technology in their mobile networks in response to smart phones that deliver Internet access, video and other rich multimedia. By some measurements, data costs are one-seventieth what they were in 2001, he calculates.
The breakthrough innovation of 10 years ago rarely makes the breakthrough innovation of today, and the company's current strategy is too centred on leveraging in today's changing environment what made BlackBerry so strong in the past. — Analyst Pierre Ferragu
