RealTime IT News

RIM Slips, Rebounds on Rumors of Rift with AOL

Mobile Internet device manufacturer Research in Motion saw a steep drop in its stock price Wednesday, following an analyst's charge that the company was in danger of losing its distribution deal AOL Time Warner -- an allegation now coming under fire from industry watchers and company insiders.

Since early last year, AOL has been reselling a custom version of RIM's Wireless Handheld pager as part of its "AOLanywhere" multi-platform access initiative. However, CIBC World Markets' Thomas Sepenzis said in a report Wednesday afternoon that the companies' relationship had deteriorated as of late, stemming from RIM's decision to more than double the price it would charge AOL for a branded Wireless Handheld.

Since AOL partially subsidizes the cost of the wireless device -- resold as the "AOL Mobile Communicator" -- to woo teenage users to its subscription service, RIM's price hike would make such subsidization wildly impracticable, according to the report. Sepenzis therefore wrote that he doubted the online giant would order more devices from RIM -- effectively terminating a lucrative distribution channel for the Ontario-based wireless manufacturer.

As a result of the report, investors hurried to dump the stock during the last two hours of Wednesday trading. Shares of RIMM eventually closed down $3.35, or 8.8 percent.

But now, other industry watchers are challenging Sepenzis' findings. Goldman Sachs weighed in before market open with positive comments about the stock, saying it couldn't substantiate the CIBC report. Additionally, Goldman analysts wrote that their predictions for the stock hadn't even factored in income from the AOL OEM deal, and that such revenue would be only upside to already healthy predictions for the company.

Similarly, Merrill Lynch wrote that it too considered AOL's orders less important than other distribution channels, and the overall wellness of business IT spending. For Merrill too, the AOL deal, if it continues, is just a pleasant bonus.

Investor hopes soared after RIM reported on April 11 that revenue for its fourth quarter that ended Feb. 28 was unexpectedly high due to extra sales to AOL. RIM's reported $90.1 million in revenue vaulted over the Street's $74.3 million hopes -- and the company was quick to add that similar AOL gains weren't a sure thing in the following quarter, guiding the Street to expect $75 million to $80 million in first-quarter revenue. From its earnings announcement to Tuesday's close, the company's stock rose 73 percent, from $21.93 to $38. CIBC World Markets has done banking for RIM in the past three years.

Neither Dulles, Va.-based AOL nor RIM is commenting officially, though a spokesperson for RIM confirmed that the two sides are "still working together today."

Furthermore, insiders at both companies familiar with the deal told internetnews.com that the CIBC report was "totally unfounded," with both partners very happy with the relationship -- though the sources declined to discuss specifics of the arrangement.

An AOL executive, speaking on condition of anonymity, added that the company wasn't considering leaving RIM for another supplier.

At press time, shares of RIMM were trading up 0.43 percent, at $34.85.

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