Old hand, new rating

Of all the analysts watching Research In Motion, few have been around as long as Michael Urlocker of GMP Securities. Urlocker was at Credit Suisse First Boston when he initiated coverage of RIM in February 1999, fifteen months after the company went public.

“RIM has the lead in this growing technology,” he wrote in his first report about the emerging email market. “We see RIM as a high-risk, high-reward play on what could become the next Palm Pilot.” Urlocker put a buy on the stock at C$14.25. A year later, RIM’s share price was C$121.90.

In his most recent report, dated January 12, Urlocker took a fresh approach to the numbers by looking at trends in different markets. He points out that while U.S. sales have been declining for a year, sales in other markets have been rising and now surpass the U.S. Assuming that pattern continues, for fiscal 2012 he predicts U.S. sales to fall 5 per cent, Canada to grow 18 per cent, the U.K. to rise 25 per cent and the rest of the world to be up 50 per cent for a total of 62 million units.

But, notes Urlocker, customer satisfaction has weakened; there is fragility in RIM’s franchise. “RIM does not have an earnings problem; it has a product and market share problem.” In the U.S., until recently RIM’s best market, RIM’s share of smartphone sales has fallen from 35 per cent to 19 per cent. Apple is down, too, while Android rose from 15 per cent to 40 per cent.

Such a decline in the U.S. could be a warning signal for other international markets. On the other hand, “BlackBerry sales are growing strongly in emerging markets and early previews of the tablet report the product is impressive and has good potential.” Moreover, he says RIM could be seen as an attractive takeover target but needs to boost software development and improve consumer marketing.

Bottom line, after being negative for a while, Urlocker likes RIM again. He’s changed his rating on RIM from “reduce” to “buy” and hiked the target price from US$54 to US$70.