Two Reasons Why Research in Motion Should Outperform

by: Eric Savitz

Needham’s Charlie Wolf this morning raising his rating on Research in Motion (RIMM) to Buy from Hold. In a research note this morning, he notes that “despite an increasingly crowded competitive landscape, the BlackBerry continues to stand out as the leader in the smartphone space.”

Wolf says his rating “is based on two simple concept:”

* First, the potential market for push email is far from saturated, especially with new designs and data plans beginning to bring consumers into the fold.
* Second, the reaction to the Pearl has been impressive. RIM has demonstrated a knack for terrific design in addition to the reliable middleware and ease-of-use that has already won over the enterprise.

Wolf concedes that “strong growth is priced into the stock,” but contends that “as continued execution brings this growth to fruition over the next twelve months the stock will continue to outperform.”

Wolf puts the total potential market for push email at 130 million subscribers worldwide, compared to RIM’s current subscriber base of 5.5 million. “While the addressable market at present is much smaller, we think that it will grow as more affordable pricing and increasingly ergonomic phones (such as the Pearl) make push email more attractive to those both inside and outside of the enterprise.”

In case you were worried that RIM was going to kill off its rivals, Wolf says you shouldn’t worry.

This is not a zero sum game. While we believe RIM will continue to flourish, this does not spell disaster for the efforts of Palm (PALM), Motorola (MOT), Nokia (NYSE:NOK), Good Technology, or Microsoft (NASDAQ:MSFT). The competition should warm new many users to the benefits of push email, which is good for RIM.

Interestingly, Wolf picked up coverage of the shares just a few weeks ago, with a Hold rating. At the time, he said: “It is an open question, then, whether the company can translate its success in the enterprise market into a successful consumer product, which demands even greater ease-of-use along with affordable data plans. However, success in both arenas, which should be evident when the product [the Pearl] is introduced, could lead to adoption rates that exceed our current expectations, and in turn, trigger an upgrade.”

I guess the evidence is in.

This morning, RIM shares have gained $1.87, to $86.11.

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