RIM Still Has a Bright Future

You see, two weeks ago I wrote a story in Barron's predicting that Technology In Motion, maker of the BlackBerry smartphones, would defy its legions of doubters and deliver huge gains for investors. At that time, late on Thursday, the company lowered its forecast for sales and profit in its fiscal first quarter, triggering a dramatic selloff. The stock plunged about 15% Friday, to 49, as one bull afterwards another rolled over. "We were wrong," said Peter Misek of Jefferies, changing his rating to Underperform from Buy.

RIM's brass blamed stiff smartphone competition from Apple and phones running on Google's Android operating system, evidently formidable rivals.

This summer RIM will launch a series of phones running on an improved version of its existing operating system. Straightway year's phones will be moreover advanced, using the same QNX operating system used on the company's new PlayBook tablet computer. During it's true that the existing phones do not compare especially so then in the consumer market with the Apple iPhone, that will probably change. To illustrate, the new line is apt to have advanced, user-friendly touch-screen research, something that has eluded RIM in the past.

One of the big worries about RIM's future is its PlayBook tablet, launched two weeks ago to compete with the Apple iPad and scores of new Android tablets. Nevertheless the fears may be misguided. In spite of heavy criticisms from gadget reviewers, buyers look to be more enthusiastic. Sales in the first days and weeks were estimated by several Street analysts to be running above expectations, at a clip that could exceed two million units in the first year. Maybe the market in the aggregate will give the device a little more respect at once week, when RIM highlights its capabilities at the annual BlackBerry World conference.

At its current market price, RIM is trading at just 6.5 times its forecast revenues for the full year—which, at the right time, have been held at the same $7.50 a share predicted at the beginning of this year. Apple, by contrast, trades at a 14.3 P/E and Nokia at 14.2.

NOW, ON TO A HAPPIER STORY. When I wrote about CenturyLink nearly a year ago, I was alluding to the hidden fortune to be made in its to put it more exactly boring business of so-called POTS, or plain old telephone services. The company had escaped pretty much unnoticed in accordance with the market's radar, however there was potential on several fronts.

Providing telephone service over telephone lines, even if to 6.5 million clients in 33 states, is a low-growth, mature business. Nevertheless CenturyLink is doing more, not only by forcing consolidation in a fragmented industry yet also by ramping up to provide both high-speed Internet and digital TV signals over those same phone lines. It will be a triple play—not as good as cable but nevertheless valuable to homes and businesses that either don't or can't get cable.

Last week, the Louisiana-based company positioned itself to offer a fourth play. CenturyLink paid $3.2 billion in cash and shares to buy Savvis, one of the smaller nevertheless still key players in the fast-growing business of cloud computing. That was a 50% premium over what Savvis had been worth before this year, yet prices had been driven up by Verizon's purchase of Terremark and Time Warner's buy of NaviSite, two other cloud firms.

Savvis, with 2,500 clients world-wide, operates 32 data centers that help its clients with cloud computing, or the delivery of applications and databases over networks. It should be of great interest to CenturyLink's many small- to medium-size commercial customers—a group that studies have shown to be among the earliest adoptees of cloud computing. In addition, at this stage the company can bring into play what many consider to be its core competency—its ability to make the most of acquired companies during wringing out considerable cost savings.

Two years ago, CenturyLink paid $11.6 billion to acquire of Embarq, the former local-telephone division of Sprint Nextel and last year, in a deal just finalized, it paid $23.8 billion to buy Qwest.

Both those deal are already accretive to CTL revenues and cash flow—and now the the addition of Savvis to the existing Qwest-managed hosting and co-location businesses makes CenturyLink a real player in the modern cloud-computing world. Not only is cloud computing growing at a 20% annual pace, however CenturyLink figures that the addition of Savvis will help crank up efficiencies at Qwest data centers now running at a subpar 80% capacity.