For the past year, can-ada’s two technology titans — Waterloo, Ont.-based Research in Motion Ltd. and Brampton, Ont.-based Nortel Networks Corp. — have been on separate planets with markedly different orbits.

RIM, the developer of the ubiquitous BlackBerry e-mail device, has gone from strength to strength, with its share price up 94% year-to-date as of mid-December. And despite a recent pullback, the stock is still trading close to its all-time high of US$141.56 a share, set on Nov. 24, 2006. (All figures are in U.S. dollars.)

Over the same period, telecommunications gearmaker Nortel has seen its market value slip by almost 30%; it was trading at $22.60 a share in mid-December, following the company’s 10-for-one stock consolidation on Dec. 1. This is less than 3% of the firm’s record-high close of $870 a share set in 2000.

Each situation presents investors with potential for profit. But, surprising perhaps, RIM offers the prospect of higher growth but at the cost of significantly greater risk.

Among RIM’s bulls is Peter Misek, an analyst with Canaccord Adams Inc. in Toronto. On Nov. 20, Misek raised his share price target on RIM to $180, up sharply from his previous target of $133.61. The rationale for this is his earnings estimate of $7 a share in the fiscal year ending Feb. 28, 2009, which is more than double his earnings projection of $3.39 a share for fiscal 2007, now in its final quarter.

Misek’s optimism is based on a Canaccord Adams’ survey published this past November of companies that sell handsets known as “smartphones,” which combine voice, e-mail and the ability to surf the Web. “Levels of optimism in terms of smartphone volumes and pricing have jumped to highs since we began our survey last year,” Misek wrote in the report, adding that RIM was faring well in terms of customer satisfaction and sales.

Misek expects RIM’s revenue to reach $5.3 billion in fiscal 2009, up 25% from his forecast of $4.3 billion for fiscal 2008 which, in turn, is up 46% from his estimate of $2.9 billion for fiscal 2007.

There is certainly much to like about RIM. The company has 6.2 million subscribers in almost 90 countries and tight relationships with more than 200 carriers, including most of the large ones. The number of subscribers is expected to approach 15 million in fiscal 2009, says Ittai Kidron, an analyst with CIBC World Markets Inc. in New York. In the key U.S. market, RIM’s share of the smartphone market among businesses was a commanding 51% during the first half of 2006, according to U.S.-based consulting group International Data Corp. Competitors Palm Inc., Motorola Inc. and Nokia Corp. were well behind, at 29%, 11% and 4%, respectively.

Nevertheless, the rapid run-up in RIM’s share price since last summer is giving many analysts pause. Kidron summarized the sentiment best by noting in his Nov. 30 research report that RIM is “a gem. But we won’t pay diamonds for a pearl.”

Kidron’s difficulty with RIM lies in the risks associated with the company’s decision to enter the consumer market this past September with the launch of Pearl. Unlike RIM’s standard handsets, which are designed for corporate e-mail and phone service, the Pearl is equipped with a digital camera and an MP3 music player, as well as traditional BlackBerry functions.

The attraction of the consumer segment is obvious. IDC says the potential global market for corporate smartphones is 650 million, while the consumer segment could reach two billion users. Ignoring consumers would mean giving up on 75% of the potential market.

Nevertheless, Kidron argues, the two niches require very different skills to succeed. Although the corporate handsets emphasize security and a very controlled environment for business applications, consumer handsets, on the other hand, are all about “fashion, brand, cost and fast product turnover.”

He adds: “RIM’s core advantages in enterprise are generally not transferable to consumer.”

RIM grabbed a leading share of the mobile e-mail market for corporations because it was among the first to work on the problem of synchronizing handsets and corporate servers. This is why competitors such as Palm, Motorola and Nokia are playing catch-up. But it’s a different story in the consumer world, in which Nokia and Motorola have very well-entrenched brands and lots of experience with pumping out many new models each year.

@page_break@For investors, the big plus in RIM’s Pearl strategy involves the potential for growth. If RIM can grab an extra 1% share of the overall consumer market without detracting from its core business, Kidron says, unit sales of handsets would jump by 10 million, handset revenue would increase by $3 billion and service revenue would increase by almost $500 million annually.

The downside is an increased risk that RIM will misread fickle consumers, thereby missing earnings targets and boosting the already significant volatility in RIM’s share price.

Kidron estimates RIM’s earnings will be just $5.27 a share in fiscal 2009 — about 25% less than Misek’s projection — up 17.4% from his $4.49 estimate for fiscal 2008. Kidron predicts fiscal 2009 revenue of $4.8 billion, up 20% from fiscal 2008 sales of $4 billion.

The bottom line for Kidron is he likes RIM as a long-term growth story but considers the company fully valued at $133.66 a share. He recommends buying the stock when it dips below that. (RIM closed at $127.69 a share on Dec. 8, suggesting that would’ve been a good time to buy.)

Nortel, on the other hand, offers the potential of a more immediate payoff as well as some long-term gains — but only if the new executive team put in place by president and CEO Mike Zafirovski can deliver on its promises.

When analysts met Nortel’s executive team in Toronto on Nov. 15, they were pleasantly surprised at the level of detail they found. Led by Joel Hackney, Nortel’s new senior vice president in charge of global operations, the executives outlined plans for trimming $1.5 billion in costs annually, representing about 14% of sales. It’s an ambitious target, but analysts were shocked at the large amount of fat in the organization available for cutting.

For example, Hackney said Nortel had roughly 80,000 parts (known as “stockkeeping units”) in its system at the beginning of the year. This is far more than considered necessary and reflects Nortel’s historical lack of discipline when it came to designing new products. Many SKUs, for example, were one-of-kind items designed to please a particular customer. The result has been an expensive and unwieldy supply chain. Nortel expects to knock down the number of SKUs to 41,000 by Dec. 31, its fiscal yearend, with a further reduction to 25,000 by yearend 2008.

Nortel also unveiled plans to manufacture more of its parts and do more research and development in low-cost countries such as India and China. The company currently does 75% of its components procurement, as well as 70% of its manufacturing, in higher-cost countries. It has also begun to sell more of its products online.

However, analysts were less impressed with Nortel’s growth strategy. The company expects revenue to increase by about 10% annually, excluding the impact of acquisitions and its recent divestiture of its UMTS wireless unit.

Brian Modoff, a San Francisco-based analyst with Deutsche Bank Securities Inc. , rated Nortel shares a “hold” in his research note issued Nov. 15. His share price target of $20 was based on his analysis that Nortel is underestimating how difficult it will be to charge what it wants for new products in the face of low-cost competitors from China. “The company is also pinning its hopes on services and software businesses,” he added in the note. “While this approach has merit, it could also take many years to develop.”

Modoff predicts Nortel’s earnings will essentially break even in 2007, vs an estimated profit of 40¢ a share in 2006 and a loss of 59¢ a share in 2005. He expects revenue to hit $12.1 billion in 2007, up 7.7% from $11.3 billion in 2006.

George Notter, an analyst with Jefferies & Co. Inc. in New York, is more optimistic about Nortel’s prospects, for two main reasons: first, he believes many of his analyst colleagues are underestimating the ability of Nortel’s new executives to drive down costs and, hence, improve operating margins; second, the stock (valued at $20.30 on Nov. 16, the day of his report) was trading at 12.7 times 2008 projected earnings of $1.60 a share, which is considered low for a technology stock.

Given Nortel’s rocky earnings history, a better measure might be its price per share divided by its revenue per share — a ratio that compares how good the firm is at squeezing market value out of comparable sales levels. On this measure, Nortel is decidedly weak. Its share price on Dec. 11 was 0.9 times sales, compared to 1.24 times sales for Motorola of Schaumberg, Ill., and 5.6 times sales for Cisco Systems Inc. of San Jose, Calif.

If Notter is right about Nortel’s executive team’s potential, investors will be able to judge for themselves each quarter. The turnaround won’t happen overnight. But if Nortel can marry its cost-cutting efforts with smart bets on new product strategies, there is potential for a dramatic payoff for inves-tors down the road. IE