U.S. BlackBerry Bears Growl as Canadians Keep Faith

A Research in Motion Ltd. (RIM) Blackberry smartphone
A Research in Motion Ltd. (RIM) Blackberry smartphone. Photographer: Chris Ratcliffe/Bloomberg

Americans and Canadians have disagreed about plenty over the years: the British, nationalized health care, hockey.

Now, there’s a new cross-border dispute brewing -- over BlackBerry maker Research In Motion Ltd. American analysts are increasingly skeptical that the Waterloo, Ontario-based company can compete with mobile-phone rivals Apple Inc. and Google Inc. and lift its stock from a 16-month low. Canadian investors say the Yanks are underestimating their national champion.

“It is a cultural thing,” said Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto. “On our side of the border, folks give the guys at Research In Motion a lot more credit than the U.S. folks do.”

The split is widening. Ehud Gelblum, an analyst at Morgan Stanley in New York, cut his rating on RIM last week, making him the third U.S. analyst to downgrade the stock since the company reported sales that missed analysts’ estimates on June 24. Since then, Steven Li, an analyst at Raymond James Ltd. in Toronto, lifted his rating to “outperform” and Dundee Securities’ Dushan Batrovic, also in Toronto, initiated coverage with “buy.”

Ten of 11 Canadian analysts who rate RIM and are tracked by Bloomberg recommend buying the stock. Michael Urlocker, an analyst with GMP Securities LP in Toronto, cut his rating on the stock today to “hold” from “buy.”

Just 54 percent of the 35 U.S. analysts with a rating on RIM give a similar endorsement. Four U.S. analysts, including Gelblum, Citigroup Inc.’s Jim Suva and Simona Jankowski of Goldman Sachs Group Inc., rate the stock a “sell” or “underweight.”

Eroding Loyalty

RIM’s skeptics have bragging rights for the moment. Its stock is down 37 percent in the past year, while Apple is up 43 percent. RIM rose 68 cents, or 1.4 percent, to $47.74 at 4 p.m. New York time on the Nasdaq Stock Market.

Long the leader in wireless e-mail, RIM is fighting to fend off Apple’s iPhone and Google, which makes the Android software used in phones from Motorola Inc. and HTC Corp.

RIM’s share of the global smartphone market slid to 18.2 percent in the second quarter from 19 percent a year earlier as customers opted for rivals’ phones with larger screens and more applications, according to researcher IDC. Apple’s share rose to 14.2 percent from 13 percent, while Android surged to 17.2 percent from 1.8 percent.

What’s more, the loyalty of BlackBerry aficionados may be waning. RIM’s pioneering mobile e-mail service made it the must-have device among bankers, lawyers and government workers a decade ago. Only 42 percent of BlackBerry users say they want to stick with the brand when they buy a new phone, according to an August survey by Nielsen Co. For iPhone owners, the same figure is 89 percent, and for Android it’s 71 percent.

BlackBerry Torch

This month, RIM released the Torch, which has a full screen like the iPhone, and a slideout keyboard for BlackBerry devotees. The phone features RIM’s newest operating system with an easier-to-use Web browser, with the company calling the introduction “one of the most significant” in its history.

That wasn’t enough for Morgan Stanley’s Gelblum. He cited the device’s “disheartening” and “lukewarm” initial sales as one of the reasons he cut RIM to “underweight” from “overweight.”

Mike Abramsky, based in Toronto with RBC Capital Markets, is one of the most consistently bullish RIM analysts. Abramsky, who’s rated RIM “outperform” or “top pick” since January 2009, said the Torch marks the beginning of a spate of new products.

“The Torch is not a ‘Hail Mary,’” said Abramsky, who doesn’t own the stock. “Torch is the first of many new mobile devices, all of which are expected to have BlackBerry 6 with rich browsing and an updated user interface.”

Geographic Bias

Some American analysts may be overly focused on U.S. sales, while Canadians focus on RIM’s faster-growing regions like Brazil and Indonesia, said Matt Thornton, an Avian Securities LLC analyst in Boston.

“If you look at India, Indonesia, Latin America -- it’s a sexy booming brand,” said Thornton, who rates RIM “positive.” “For RIM, most of the headlines and chatter is about the U.S. If everyone really understood and took in the full international perspective, the stock’s valuation would be better.”

Tero Kuittinen, an analyst with MKM Partners in Greenwich, Connecticut, agrees. “U.S. analysts tend to look at the global handset market through the prism of AT&T and Verizon,” Kuittinen said, referring to the biggest U.S. wireless carriers. He has a “buy” rating on RIM.

Trailing Apple

The 26-year-old company has promoted the BlackBerry Curve and Bold across Latin America and Asia and has been rewarded as sales outside Canada, the U.S. and the U.K. jumped 89 percent last quarter, outpacing the North American market. Still, total sales growth of 24 percent trailed Apple’s 61 percent.

While RIM’s rivals have the momentum now, U.S. opinions about the company’s prospects may just boil down to skepticism that a Canadian company can take on Silicon Valley’s best, said BMO Harris’ Taylor, who manages both Apple and RIM shares.

The thinking, he said, is “How could a Canadian company build technology that could truly compete and have features that would be worthy of meaningful market share versus the clear, obvious huge capability of an Apple?”

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