Swirling Around the RIM?

04/13/2012 8:45 am EST


Michael Smedley

Director and Chief Portfolio Officer, Canadian General Investments and Morgan Meighen &

The once mighty juggernaut of smart phones is now in trouble of becoming yet another skeleton in the high tech Valley of Death observes Michael Smedley of Investor's Digest of Canada.

Earlier this year, I made a prediction about Research In Motion (RIMM). I said that after all the bad things that had befallen the high-tech wunderkind, investors would hear some good news that would ratchet up RIM's stock price.

And that did happen-at least for a while, after which the company continued to sink.

In some ways, RIM's dilemma is the same as that now faced by Canadian Pacific Railway (CP). Granted, RIM, unlike CP Rail, has so far failed to attract a New York-based hedge fund with a take-no-prisoners attitude. As well, there's no Hunter Harrison look-alike waiting in the wings. Nor has Canadian Pacific been put on a death watch.

RIM, of course, remains a force to be reckoned with. Indeed, it's still worth billions of dollars. Yet having recently reported another bad quarter, and with its research and development more a picture of commotion than motion, RIM is seen as having gone off the rails. Indeed, failure is now thought to be a very real possibility.

In fact, a sale of one piece or several pieces of RIM now seems more likely-and sooner, rather than later.

But miracles do happen.Consider the case of Apple (AAPL). Just a few years back, its outlook was worse than RIM's. That, of course, was before the late Steve Jobs returned for the laying on of hands and Apple's eventual resurrection.

Now, I have a kinky addiction for turnarounds. I missed out on Apple's, but our closed-end funds-Canadian General Investments (Toronto: CGI) and Canadian World Fund (Toronto: CWF)-are both enjoying a bite of the Apple.

The high-tech play is now the second- and third-weighted name in the funds' Top Ten holdings. The Canadian World Fund also holds RIM, although I originally bought it at about $7 a share when techie-type guys first began appearing on Bay Street.

But back to Apple. Yes, it was once in the wreckers' yard. But it could still lay claim to a favored graphics function, as well as simplicity of operation.

RIM, too, boasts traditional strengths, although some are valued by customers more than others, admits Thorsten Heins, the mild-mannered gent who recently took the reins of the Waterloo, Ontario-based company. RIM's strengths remain business e-mail, speedy text messaging, as well as its growth in many emerging markets.

It's still the No. 1 seller in the UK, and as recently as last week was the No. 1 seller in Canada for Glentel (Toronto: GLN), this country's largest independent retailer of mobile phones.And that's no small accomplishment, given Glentel's strength in smartphone retailing in shopping malls across Canada, as well as its growing footprint in the US.

My best shot for RIM now appears to be a buyout or some other kind of supportive maneuver.

RIM's future is hazy. But it is working on various compatabilities and fusions with the iPhone, Android, Samsung, and other families. RIM is also being touted for possible links with iconic Microsoft (MSFT), as well as with an array of Asian platforms.

Indeed, even IBM (IBM) has been mentioned as a long-term friend or even a partner to cuddle up with, although RIM doesn't appear particularly interested right now. Amazon.com (AMZN), the giant on-line book seller, also seems to have been touted as a possible suitor.

One can persist in hoping RIM will hit $24, but no one is writing research reports any more. Nonetheless, in the current market, a return to $24 would be a spectacular performance-indeed, an outperformance.

Oddly enough, Apple, whose shares are locked into one of those vertical runs that always come to an end, boasts about 56 "buy" recommendations, but only one "sell." I'm told this reflects the view of just one analyst.

Then, too, in a case such as Apple's, absolute supremacy too easily disintegrates under the collective ganging up of a strong peer group. And although it's now hard to find negative hits on Apple, they have been made.

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