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Research In Motion: Still a Contrarian Buy

RIMM is setting itself up much like IBM did

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Research in Motion (NASDAQ:RIMM) continues to be a roller coaster ride for investors. After enjoying a fantastic rally to start the year, the stock has since given back all of its gains and now sits dangerously close to hitting new lows.

Research In Motion
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There is a lot of emotion surrounding RIMM stock, and it can be difficult to remain objective. A big psychological blow came recently when the Bureau of Alcohol, Tobacco, Firearms and Explosives announced it was dropping its BlackBerry devices in favor of Apple’s (NASDAQ:AAPL) iPhone, in part because of the iPhone’s better mapping and navigation applications.

The ATF’s decision would affect just 2,400 field agents; this is barely a drop in the bucket considering Research In Motion has more than 1 million users in the U.S. government alone.

Still, the news sent the stock down nearly 4% because it raised fears that RIMM was losing its grip on its most steadfast customers — government agencies and large corporate enterprises.

I hesitate to read too deeply into this headline. One agency’s decision to dump its BlackBerries hardly constitutes a trend. It makes for good banter on tech message boards, but it’s little more than noise.

There is, however, other news that deeply concerns me. My biggest bullish argument for RIMM is that the company is quietly transforming itself into a services company, undergoing a transformation not too different from that of IBM (NYSE:IBM) a generation ago. IBM largely got out of the hardware business and now focuses most heavily on long-term services and consulting.

See Also: It’s Time to Give IBM Props

Similarly, RIMM is setting itself up to be the premier smartphone management company for large enterprises with the launch of Mobile Fusion. Mobile Fusion will allow corporate and government IT departments to manage iPhones and Google (NASDAQ:GOOG) Android phones with the same level of control and security provided by BlackBerry Enterprise Server. The handset business could slowly wither and die, and RIMM still would have the potential to be a smashing success.

Alas, that dominance is not guaranteed. One of the reasons the ATF gave for its decision to drop its BlackBerries was the high cost of running BlackBerry Enterprise Server. The agency has decided to use cheaper providers going forward.

Again, the move of one agency does not make a trend. But what if the major carriers decide to push back on RIMM and demand lower payments for both BlackBerry Enterprise Server and its lower-end consumer alternative BlackBerry Internet Service?

Northern Securities analyst Sameet Kanade forecasts that RIMM’s current $5 monthly fee per subscriber could get pushed as low as $2. I have serious doubts about this (at least in the near future), but it does give fodder for thought.

Article printed from InvestorPlace Media,

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