Canada : RIM plans buyback to tackle sinking share price.

Byline: Mamta03

Normally when rivals challenge Research In Motion Ltd. the Blackberry maker deflects them with its superior technology, design and global distribution partnerships. This time, however, the company is having to do more.

The latest wave of competition comes in the form of Google Inc.'s Android software platform, which gets a boost today from the launch of Motorola Inc.'s Droid handset by Verizon Wireless, the No. 1 U.S. wireless carrier.

With rising threats from Google, Motorola and Apple Inc.'s iPhone, which continues to build market share, RIM shares have suffered a six-week selloff that has seen the stock lose one-third of its value.

Investors have been fretting that sales growth is declining and profitability is being squeezed as competition rises, after management forecast sales for the quarter that were below analysts' expectations.

Yesterday, RIM announced that it would spend as much as $1.2-billion (U.S.) over the next 12 months to buy back its own shares on the market. The news helped lift the share price 26 cents (Canadian) to $61.65 on the Toronto Stock Exchange.

Executing a $1.2-billion buyback would take a sizable bite out of the company's cash reserves at a time when handset makers, including RIM, have been increasing their investments in marketing and development.

RIM generated $1.2-billion (U.S.) of cash from operations in the first six months of its fiscal year and reported having $2.5-billion of cash and investments on hand as of Aug. 29.

But the Waterloo, Ont., company says that the repurchase program is in the best interest of shareholders.

" It will not impact RIM's ability to execute its growth plans, given the strength of RIM's balance sheet and expected cash flow generation over the next several quarters," RIM said in a news release.

Phillip Huang, an analyst with UBS Securities Canada Inc., said the buyback should help the stock, but RIM must still prove to investors that Apple and other competitors are not starting to erode RIM's profitability.

Although the share repurchase should give investors some comfort, we believe headwind concerns will likely remain, putting the onus on the company to continue to disprove market concerns through earnings strength," Mr. Huang wrote in a research note.

"Multiples are likely to remain compressed until the company shows sustained signs of earnings strength and acceleration."

Verizon Wireless, which has relied heavily on the BlackBerry to counter its rival AT&T Inc.'s stranglehold on the iPhone in the U.S., will now also have Motorola's Droid in its smart phone lineup.

It's a device that is critical for the comeback drive of Motorola, which hasn't had a market winner since it introduced the Razr flip phone in 2004.

Early reviews have been favourable, praising the Droid's large, high-resolution screen and ability to run multiple third-party applications simultaneously - something neither the iPhone nor Blackberry do.

Copyright : Euclid Infotech Pvt. Ltd.

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