Sunday, September 19, 2010

RIM Short Interest Doubles as BlackBerry Loses Ground to IPhone


Bets against shares of Research In Motion Ltd. have doubled since April as investors wager the BlackBerry maker’s stock will continue to decline in the face of competition from Apple Inc. and Google Inc.

Short interest in RIM climbed to 31.1 million shares as of Aug. 31, more than double the level on Apr. 15 and the most since June 2007, according to data compiled by Bloomberg. Investors taking short positions borrow and sell a stock, aiming to profit by repaying the borrowed shares at a lower price.

“Everybody is so negative, the short positions continue to grow,” said Buzzy Geduld, chief executive officer of New York hedge fund Cougar Trading. He said he may short or buy the stock after the company’s earnings report today and doesn’t own shares at the moment.

Best known for handsets equipped with a full keyboard, RIM has struggled to create touch-screen devices that can compete with Apple’s iPhone and phones like Motorola Inc.’s Droid that use Google’s Android software. The BlackBerry Torch, a touch- screen model that went on sale last month, has received mixed reviews and generated what analysts say are lukewarm sales.

At the same time, the Waterloo, Ontario-based company faces challenges as it expands in overseas markets and the potential loss of business in its traditional corporate base. Countries such as India and the United Arab Emirates have threatened to ban BlackBerry services over security concerns.

Revenue, Profit Growing

Of 200 companies polled in the U.S. and U.K., 74 percent now let employees use devices other than BlackBerrys, according to an August survey by Sanford C. Bernstein & Co. JPMorgan Chase & Co., the second-largest U.S. bank by assets, may soon let employees use iPhones or Android phones for corporate e-mail, in place of the BlackBerry, for the first time, two people familiar with the situation said last week.

The stock has dropped 31 percent this year on the Nasdaq Stock Market as Apple has climbed by that percentage. RIM rose 97 cents to $46.49 at 4 p.m. New York time.

Marisa Conway, a spokeswoman for RIM, didn’t respond to messages seeking comment.

RIM is still boosting revenue and profit as mobile-phone buyers increasingly shift to smartphones that can surf the Web and play videos and music. When the company reports results for the latest quarter today after the close of regular trading, revenue is likely to jump 27 percent to $4.49 billion while net income surges 58 percent to $753 million, according to average estimates from analysts surveyed by Bloomberg.

‘Losing Mind Share’

Growth in the U.S. is slowing and the company is losing market share globally. RIM’s portion of the worldwide smartphone market slid to 18.2 percent in the second quarter from 19 percent a year earlier as customers opted for devices 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.

“It feels like RIM is not in touch with what demanding, tech-savvy customers want,” said Nirav Parikh, senior vice president at Los Angeles-based TCW Inc., which manages $110 billion and sold all of its remaining 866,749 RIM shares as of June 30, according to a securities filing.

“They are losing mind share,” he said. “Their international growth is great, however those markets in the next couple of years may follow trends in the U.S., which don’t bode as well for RIM,” said Parikh.

Analyst Downgrades

While 31 of 54 RIM analysts recommend buying the shares, five analysts have downgraded the stock over the past quarter and nine now recommend selling. Among the RIM bears is Goldman Sachs Group Inc.’s Simona Jankowski, who cut her rating on the stock to “sell” in April and says the Torch didn’t do enough to change her mind.

“They really needed a very high-profile, very successful launch that was a really big hit,” Jankowski said. “That’s how high the bar was and they just didn’t clear it.”

Cougar Trading’s Geduld said he’s waiting to hear the company’s earnings news before deciding how to invest.

“I don’t think it’s quite a short and I don’t think it’s yet a long,” he said. “The real question is what are they going to say about the future.”