In the annual Barron's Roundtable (sub. req.) of investment pros, Art Samberg of Pequot Capital Management makes a surprise consumer electronics pick for 2006 -- BlackBerry maker Research In Motion (RIMM), which remains mired in a deep patent dispute. The discussion touches upon the key issue of Microsoft's mobile e-mail product as well:
Fred [Hickey of The High Tech Strategist] will go crazy when he hears my next stock. It's RIMM, Research In Motion. The bad news is in the stock. A patent dispute with NTP will be resolved in the next three months. There is a new BlackBerry product, the 8700, that looks terrific. Of all the other companies that have introduced BlackBerry-like products, Motorola (MOT) is the one I'd be most concerned about. The financial dynamics of Research In Motion have been misunderstood.
Barron's: How so?
Samberg: The company has 75% of the market for wireless e-mail users. There are 5.7 million wireless e-mail users in the world. There are an estimated 550 million enterprise e-mail addresses, some 15% of them mobile. There is an available market of 80 million people. People who work on Wall Street think everybody has a BlackBerry. Everybody does not. The power of these things is increasing dramatically. There is no reason to schlep a notebook computer around anymore.
Research In Motion makes money on handsets, but not nearly as much as it makes on having a network and providing the service. There are over 60,000 BlackBerry enterprise servers. The business is growing like mad, and a lot of good stocks have walls of worry.
Barron's: This one seems to have a big wall.
Samberg: The sequential growth rate of new shipments has been declining. There has been a lot of media hype over the patent suit. But there's more than $1 billion on the balance sheet. If the company loses the dispute, it could cost them $5 a share in cash. Any settlement under $1 billion and the stock flies.
Hickey: The lawsuit isn't the real risk. The settlement will be a certain dollar amount, from $450 million to whatever. The real risk is the competition, because the BlackBerry is expensive. When usage reaches a level that interests the likes of Nokia (NOK) and Motorola, they'll make them cheaper, and on a Microsoft standard that eliminates the server.
Samberg: People don't want a Microsoft solution. Corporate America doesn't want it.
Hickey: IT managers do want to be compatible with Microsoft software. It is the entrenched standard.
Samberg: The BlackBerry receives a message only when there is a message sent. Microsoft has to query the network every few minutes to see if a message has been sent. It is a total bandwidth hog. The [telecom] carriers hate the Microsoft solution because of that. It makes sense for Verizon Wireless (VZ) to buy Research In Motion, to capture the whole service.
RIMM 1-yr chart: