Since bottoming out at just $6.50 a share in September, Research in Motion (Nasdaq: RIMM) has surged more than 150%. The rally came seemingly out of nowhere, as many simply assumed the maker of BlackBerry phones was heading for the technology industry’s graveyard. 

In hindsight, it’s pretty clear most investors were overlooking the fact that the company had an ample amount of cash on the balance sheet, a still-impressive user base exceeding 75 million people, and a likely appeal for potential buyers at such distressed levels.#-ad_banner-#

Yet a host of factors is pointing to a possible imminent pullback reversal for RIMM, perhaps by a significant amount. In fact, some suspect that Wednesday, Jan. 30, may be the date at which shares start to lose steam. That’s when RIMM will release the much-anticipated version 10 of its operating system. The newly-revamped software is expected to yield greater functionality, finally enabling the company to truly compete with the more dominant Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) platforms. These two firms now control 90% of the smartphone market, so if RIMM can pick up lost market share, then this may prove to be one of the greatest turnarounds plays of the current era.

But short sellers have a different take. 

They have been boosting their positions in RIMM at a steadily rising pace, even as the company has started to see a lot more bullish interest from long-oriented investors. RIMM is now the fourth most heavily-shorted stock on the Nasdaq (after Sirius XM Radio (Nasdaq: SIRI), Intel (Nasdaq: INTC) and Frontier Communications (Nasdaq: FTR)). 

Surging short interest

Why do short sellers doubt RIMM’s resurgence is for real?

First, many short sellers remain unconvinced that even with a refreshed product line and software, RIMM could compete with Apple and Google. They note that Microsoft (Nasdaq: MSFT) is working feverishly to build its own market share in the smartphone space, so in their view, it’s impossible for RIMM to to garner double-digit market share, which would be twice as high as current levels. Market research firm IDS predicts that RIMM will control just 4% of the smartphone market by 2016.

Second, short sellers say that RIMM’s decision to eliminate monthly service fees for consumers will deeply damage the income statement. These monthly fees, which average $4 per user, carry very high margins, off-setting the fairly low-margin profile of the hardware business. In recent years, service revenue has accounted for roughly one-third of sales, though that looks set to decline in coming years.

RIMM will still impose fees on enterprises that demand greater security, and other bells and whistles. (Specific pricing plans will be announced when the new software is released next Wednesday). The company notes that more than 60 companies in the Fortune 500 are testing RIMM’s new software, but it’s unclear how many of them will commit to sticking with the BlackBerry platform. After all, many employees now have smartphones that run on Apple and Google’s software, and are not necessarily inclined to give them up. Also, companies will take their time before making any major moves. “Our own checks suggest enterprises will take at least four to six months to test the new BB10 OS,” predict analysts at Citigroup.

Third, RIMM’s impressive growth in emerging economies may be at risk. Markets such as India and Indonesia have become a key source of growth in recent years, but a number of Chinese and Korean vendors have revealed new models that will be priced far lower than RIMM’s current offerings.

Fourth, short sellers have been looking at what happened when Palm released a new phone in 2009, which was expected to boost the company’s flagging fortunes sharply. Shares ran up in anticipation of the release, but then subsequently tanked after the phone was released, as actual sales came in well below forecasts.

The bull case
Yet there are some good reasons why another camp of investors has become quite bullish. These investors note that wireless service providers such as Verizon (NYSE: VZ) are likely to throw considerable marketing support behind the imminent launch of new BlackBerry phones. These firms know they will be able to reduce the subsidies provided to the major hardware players like Apple if there is greater competition.

And unlike Palm, RIMM has nearly $3 billion in cash and has the staying power to patiently wait as market share rebounds. Indeed, even with hefty spending associated with the launch during the next 12 months, RIMM will still likely have more than $2 billion in cash a year from now. RIMM’s burn rate should be tolerable while marketing spending rises, in large part because management has already taken roughly $1 billion in overhead out of the business. To boost cash, management has even hinted it may look to sell off the hardware business.

Lastly, bulls say that if the BlackBerry is able to stay even moderately relevant among enterprise users, then the company might become a solid acquisition target for a company like Microsoft. To be sure, this argument was a lot more valid when shares were trading in single digits.

Wall Street‘s view
A few analysts who follow RIMM have become increasingly bullish as well. RBC Capital, for example, has just raised the share price target from $11 to $19, though this only represents about 10% upside. Jefferies also upgraded the stock from “hold” to “buy” this week, also with a $19 price target. They say RIMM’s decision to allow the BlackBerry e-mail service to run on Apple and Google’s smartphones is a wise one. And about the notion that the company will keep losing users: “[RIMM’s] subscriber base [is] likely to be more preserved than feared,” write Jefferies’ analysts.

But most firms take a dim view. Here’s a quick sample:

• “We consider the recent gyrations in RIMM’s stock to reflect trading momentum with no fundamental change in RIMM’s outlook yet. We are retaining our stop price target of $9.50,” note analysts at UBS.

• Merrill Lynch sees shares falling to just $7. “In our view, RIMM’s long-term outlook seems unlikely to improve and its strategic options are diminishing.”

• Analysts at Citigroup are perhaps the most bearish, with a target price of just $6 a share. They predict that RIMM’s profit margins will slump badly as service revenues start to diminish.

• Goldman Sachs’ analysts have a binary view of the stock. If the company can indeed regain its footing and boost sales in coming years (which is 30% likely), then shares are likely worth $30. But if RIMM’s steady downward spiral in revenues continues (which they believe has a 70% chance), then shares are worth just $11.

Action to Take –> Though shares have performed remarkably well, they could keep rallying yet higher if the new lineup of BlackBerrys gets off to a strong start. But considerable headwinds remain in place, and next week’s official launch could mark the end of the recent period of euphoria. Has the recent progress made by Apple and Google mean that RIMM will never regain its footing? That’s surely what short sellers — and generally bearish Wall Street analysts are anticipating. If you’ve owned this stock all the way back up from the September lows, then may be a wise time to take profits.