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Analysts: Fear, Uncertainty Could Hurt RIM

As mobile device maker Research in Motion rushed to put a positive spin on Tuesday's penalty phase of its patent infringement case with NTP, analysts are warning that the ongoing brouhaha could chase enterprise customers away.

In a stunning decision, U.S. District Judge James Spencer ruled that Research in Motion must stop selling its flagship BlackBerry handheld devices in the U.S. -- its largest market -- because technology within the two-way wireless devices infringed on patents owned by Virginia-based NTP Inc.

The judge then delayed the impact of the ruling to allow RIM to file an appeal and ordered the company to pay approximately $54 million in damages and legal fees to NTP. But, even though RIM can continue marketing Blackberry devices in the U.S., analysts believe the "fear and uncertainty" could open the doors for RIM's competitors.

"This is not good news for RIM as the U.S. is their largest market. Even though the judge did not execute the injunction effective immediately, the fear and uncertainty will likely have many corporate users look to competitive solutions," said Michael Gartenberg, a Jupiter Research analyst.

Gartenberg said large enterprises, which make up the most valuable customer base for RIM, would start looking at competing devices from the likes of Microsoft, Good Technology, Palm and Visto if the legal proceedings drag on.

Officials from RIM declined comment beyond a statement issued Wednesday that made it clear the company plans to file an appeal. Additionally, RIM plans to petition the Court of Appeals to stay the appeals process until the U.S. Patent and Trademark Office can reexamine the patents claimed by NTP.

"All five of the NTP Inc. patents litigated will be reexamined," RIM insisted.

RIM's lead attorney Henry Bunsow said the court's decision to stay the injunction was "appropriate" given the frequency of successful appeals at the appellate level.

While RIM's future in the U.S. market hinges entirely on winning the appeal, Bear Stearns analyst Andrew Neff warned that court ruling gives NTP leverage to exact onerous licensing terms.

In a research report, Neff said the certainty surrounding RIM's ability to license its technology would hurt the company's bottom line in the short term. Like Jupiter's Gartenberg, Neff said emerging competitors like Good Technology, Dell and companies marketing VPN-based handhelds stand to grab market share in the enterprise space.

In addition to the e-mail pager devices, RIM also sells wireless PC cards for laptops and handheld computers. The Waterloo, Ontario-based company generates the bulk of its revenue from sales to corporations, resellers and wireless carriers and if the litigation drags on, the analysts warned that RIM could lose its stranglehold in the U.S. market.

Meanwhile, a spokesman for NTP said the company was thrilled with the ruling and planned to continue inking licensing deals for its patents. "We open to negotiating with anyone, including RIM," the spokesman said.

Legal issues aside, the latest ruling could also put a dent in RIM's valuation, especially with rumors floating of a possible merger with HP. Last week, RIM's stock price enjoyed a spike on the HP takeover speculation but the legal headaches could put a crimp in any acquisition.

RIM declined to comment on the acquisition chatter.