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Not all that long ago Research In Motion (RIMM) was an up and coming star in the tech sector. Oh, how the times have changed since then. Having lost more than 82% from its February high until yesterday, when the stock price reached its 52-week low of $12.45, some investors will be looking for a rebound in the modestly priced shares. The stock jumped over 10% Wednesday, on takeover rumors. Investors, however, should continue to be extremely wary of this stock, which continues to have significant downside risk, even at current price levels.

The most significant hurdle to any future recovery is RIM's management. The co-CEO, co-President duo of Jim Balsillie and Mike Lazaridis have a firm grip on power and have ignored repeated calls for change. This management team appears set on staying the current course. Had they not already proven their inability to get competitive products to market in a reasonable time frame this would not be so troubling. Rumors from inside the company reek of gross mismanagement at all levels. The disastrous PlayBook escapade is further proof.

When the BlackBerry PlayBook was first released it was a solid product that could have been competitive with any tablet on the market except for one massive flaw. The product was incomplete. The PlayBook’s dependence on a BlackBerry smartphone for key tasks (ie. email, calendar, BBM) seriously limited its stand-alone functionality and thus its market appeal. After initially promising to add this functionality in a summer update, delays have pushed it until at least February and will not include the popular BlackBerry Messenger (BBM) service.

Early expectations for the initial delivery of smartphones running on the next generation BlackBerry 10 OS (renamed from BBX after an embarassing debacle) in Q1 2012 were quashed long ago. The first devices, delayed again, are now slated for release in the "latter part" of the 2012 calendar year. This is a far cry from Nokia (NOK), which is currently releasing its first Windows Phone devices in the US less than a year after the deal to use Microsoft's (MSFT) operating system was announced. RIM may not have the scale to compete with these giants in terms of spending but the fast moving smartphone industry is not going to wait. Something has got to give, or perhaps more fittingly, has already given, and so far it has been RIM's smartphone market share, which has plummeted in the US to just 10% from a high of 44% two long years ago.

RIM's management was blindsided by the smartphone revolution that has left the BlackBerry maker in its dust. That alone should have been reason enough for change. Since then, management laid out a strategy for recovery but it has been utterly unsuccessful at implementing it. The failure to execute the plan is obvious; the continued delays of a QNX based BlackBerry 10 OS smartphone, lack of foresight with product issues (ie. BlackBerry PlayBook), and the failure to recognize changes and adapt to the modern smartphone market demonstrate this failure. Before there is any chance of improvement there needs to be a comprehensive change in strategy and a serious overhaul of management.

For now the takeover rumors will most likely remain just that. With a stagnant product lineup that is falling further behind by the day the collapse in US sales will only accelerate. Although RIM trades at just 3.12 times earnings the downtrends in sales and market share point to a gloomy future. Suitors such as Microsoft and Nokia should (and probably will) hold off as they could likely obtain the same assets in the near future at a significantly discounted price. Reuter's reported Tuesday that RIM rejected takeover overtures from Amazon Inc. (AMZN), stating as reason that the company would prefer to fix its problems on its own. In any case, Amazon would be an unlikely match for a company that focuses on business products, and interest appears to have subsided. Aside from Amazon and Microsoft (possibly in a joint bid with Nokia) there are few other potential suitors.

Although RIM's future remains unclear, in the short term the downside risk far outweighs any chance of a takeover (or recovery for that matter). The trending collapse in US market share and sales will continue, if not accelerate, and spread to other areas is yet to be affected. The next generation BlackBerry OS will arrive far too late. Shorting would likely return solid profits in the months to come, but the threat of a takeover adds significant risk. Risk averse investors should steer well clear of this stock. Only one thing is certain; buyers beware.

Source: Research In Motion: Buyers Beware