By Dan Gallagher
SAN FRANCISCO (Dow Jones) -- In the wireless-device industry,
there is almost no competition. Research In Motion earned nearly
$400 million last quarter and sells one of the most popular smart
phones in the business; Palm Inc. lost nearly $100 million in its
latest period and is banking heavily on a single device that has
not even hit the market yet.
In this case, however, Wall Street lately seems to be leaning
toward the riskier play.
Such was evident on Wednesday, when RIM (RIMM) got chopped to
the equivalent of a sell rating by one broker and was initiated
with a lukewarm view by another -- both of which questioned the
company's ability to maintain profit levels for its mega-popular
BlackBerry family in the hyper-competitive wireless market that has
also been crimped by the slowing economy.
Palm (PALM), on the other hand, has been riding strong buzz as
the company prepares the launch of its Pre smart phone later this
year. The stock has been upgraded to buy ratings three times in the
past month.
Chris Whitmore of Deutsche Bank, who already had the stock at a
buy, boosted his price target on Palm to $12 from $10 on
Wednesday.
"Since their earnings release last week, we have conducted a
round of checks on Palm and remain confident in the potential for
their new Pre smartphone to turnaround the company's results,"
Whitmore wrote in a note. "The Pre timetable seems on track at
least, and both carrier and developer interest remains high."
Palm is preparing to launch the touch-screen Pre in an exclusive
relationship with Sprint (US-S) by June 30. Sales of the company's
other smart-phone devices have fallen sharply in the meantime, and
the company had to raise more capital in a recent stock offering to
get the funds to launch the device and continue to develop the
product line.
By contrast, the sentiment around RIM has been growing more
bearish of late. Ehud Gelblum of J.P. Morgan took over coverage of
the stock from another analyst, and cut the broker's rating from
overweight, or buy, to underweight, which is the equivalent of a
sell call.
In a note to clients Wednesday, Gelblum said RIM "is already
operating close to its peak earnings power" as further growth in
sales volume will be offset by price declines and growing expense
levels.
"With enterprise net adds falling victim to rising levels of
unemployment, this places the burden of growth solely on the
consumer side where we believe replacement rates should decline
with the overall handset market and as the company pushes more into
international where replacement rates are significantly lower than
in the U.S," Gelblum wrote.
In another report, Shaw Wu of Kaufman Bros. started RIM with a
hold rating, citing worries about the recent declines in the
company's profit margins as RIM has spent heavily to design and
launch new smart phones such as the touch-screen BlackBerry Storm
-- designed to primarily compete against the popular iPhone from
Apple Inc. (AAPL)
"We would like to see some stabilization in its operating margin
before getting constructive on the shares," Wu wrote in his
report.
Shares of Palm were trading up 5.7% to $8.90 Wednesday morning.
The stock price has more than doubled this year since the company
first introduced the Pre at a trade show in January.
RIM shares were last trading down 1% at $43.75. The stock has
plunged more than 25% since the company warned of
lower-than-expected earnings in early February. The company is
slated to make its next full quarterly report on April 2.
Overall sentiment on Wall Street still favors RIM. About 57% of
the analysts covering the stock rate the shares as a buy, while
only 38% of Palm's analysts have similar views, according to data
from Thomson Reuters.