RIM on the brim

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The Blackberry maker has shown poor numbers for the past couple of weeks.? Take over was always looming over head.

Now Research In Motion (RIMM) has lost so much value that an acquirer could pay a 50% premium and still buy the company for a lower multiple than any other company in the industry.

The company has been on a downward spiral for past three years, as it fell more than 80% from being valued a $83 billion.

Decline

RIM hasn?t introduced a major new BlackBerry since August

The Waterloo, Ontario-based company, which plunged last week after saying quarterly sales may drop for the first time in nine years, closed yesterday at $25.89 a share, or 4.7 times earnings next year. That?s less than any communications-equipment provider, according to data compiled by Bloomberg.

BlackBerrys deterioration was contributed bt the lack of more BlackBerry apps, that can sufficiently compete with the myriad of apps in the market. Apple Inc. (AAPL)?s iPhone and Google Inc. (GOOG)?s Android platform swept smartphones customers away from BlackBerry.

Companies generally have the development of BlackBerry apps at the bottom of their list.? And when they do come out, the BlackBerry apps are frequently more costlier compared to its rivals. For instance the Angry Birds for the Android and iOS cost around $1 while the Angry Farm app for the BlackBerry has a price tag of $5.

A number of app developers do not find it easy to create BlackBerry apps due to the number of modifications in the API for each BlackBerry OS version. The specs of the BlackBerry devices are also different which does not make it easier to create BlackBerry apps.

The big blow

Seesmic has announced that it is ceasing support of RIM?s BlackBerry platform, in favor of focusing on its ?most popular? mobile platforms: Google?s Android, Apple?s iOS and Microsoft?s Windows Phone 7. This is a huge blow for the Blackberry maker

Attraction

While Jim Balsillie and Mike Lazaridis, RIM?s co-chief executive officers, said last week that their commitment to RIM is ?stronger than ever,? the company may now attract Microsoft Corp. (MSFT) and Dell Inc. (DELL), BMO Harris Private Banking said.

A buyer would get a smartphone maker that is still dominant among corporate clients, offers greater security with its own e-mail servers and generates more free cash versus its market value than any of its rivals. Paying $40 a share still values RIM at a discount to comparable companies in the industry.

?Given how significant the deterioration of the stock price has been, that alone will cause interest,? said Paul Taylor, who oversees $14.5 billion, including RIM shares, as chief investment officer at BMO Harris in Toronto. ?RIM still has meaningful market share in the U.S. and meaningful market share internationally, and RIM has an iconic brand.?

Shareholder Value

?It?s not hard to envision a stock price that?s somewhere between $40 and $50 a share? in an acquisition, Taylor said.

RIM has lost almost $70 billion since it peaked in June 2008. Leaving it with a market capitalization of $13.6 billion yesterday. This 82% decline was the biggest among communications equipment providers worth at least $10billion, in the past three years according to Bloomberg.

Market Share

RIM?s slump accelerated last week after it released second- quarter sales and profit forecasts that trailed analysts? estimates.

In a span of about two years, RIM?s market share in North America declined to 13 percent from 54 percent, Pierre Ferragu, a London-based analyst at Sanford C. Bernstein & Co., stated.

Cheaper Android phones are also making inroads in Latin America, Asia and Europe, threatening the popularity of RIM?s less expensive BlackBerry models such as the Curve.

Acquisition Cost

?Any device they come out with is likely at best to catch up with current offerings, not exceed them,? said Michael Yoshikami, chief investment strategist at YCMNet Advisors, which manages $1 billion in Walnut Creek, California. ?I wonder if management completely recognizes the market challenge.?

While RIM?s managers have made it less valuable versus its earnings than any other smartphone maker, it?s also giving buyers willing to bet on a turnaround a chance to purchase the company on the cheap.

Among potential acquirers, Microsoft could build its share in smartphones and gain a device to complement its Windows Phone 7 mobile-phone platform, said BMO Harris?s Taylor.

Customer Base

It is estimated that RIM?s customer base will increase to 77 million by the end of the fiscal year, from 42 million last year., Bernstein?s Ferragu said. Almost a quarter of those customers will be corporate users.

RIM would ?would bring more critical mass? to Microsoft?s smartphones, said Scott Sutherland at Wedbush Securities Inc. in San Francisco. ?From a valuation perspective and given their market exposure, it does become interesting at these levels.?

Potential Buyers

It does look like a sweet deal for any buyer. The market sure is speculating some big IT players. But again it is also speculating that it might not happen.

HP

Could HP be interested some may ask.

HP has its hands full in trying to integrate Palm. Further it has already made a long term commitment for better or worse to WebOS. CEO Leo Apotheker has declared an intention to build up the company?s position in enterprise software.

Thereby a new commitment would seem highly unlikely.? RIM? Not on the books!

Oracle

Oracle with Java, Sun & RIM are experts in this space which Apple has shown consistent weakness in supporting (think of the early iPhone issues in connecting to Microsoft Exchange servers). It looks like Oracle could benefit.

On the other hand Larry Ellison does not want to be in a business as consumer-dependent as this one has become.

Not Oracle?s style.

CISCO

Some analysts believe Cisco would be able to integrate its video editing software into RIM?s desktop manager with hooks into Facebook, Twitter and others to offer a more compelling multimedia offering. The analysts also suggested that Cisco could leverage RIM?s Mobile Voice System (allowing employees to get rid of desk-based phones), which would play into its IP Telephony initiative

Well for others its a disaster in the making. ?Some analysts say that not only will the company suffer , the market would run John Chambers CEO of CISCO out of town. In the past the CEO has flat out denied any interest in making handsets.

?The street wants the company to focus on the core, not to tack on a handset company? a Forbes analyst said.

There by RIM is a no show for CISCO.

Why Dell?

The world?s second largest maker of personal computers would be benefitted from RIM. This could help it to reduced its dependence on PCs as consumers buy more handheld devices according to Stuart Jeffrey, an analyst at Nomura Holdings Inc. in New York.

Dell?s revenue from desktop PCs has tumbled 32 percent in the past five years, data compiled by Bloomberg show.

To help counter the decline, Dell last year released its Venue Pro smartphone, which runs Microsoft?s Windows operating system.

Dell doesn?t disclose its phone sales, according to David Frink, a spokesman for the Round Rock, Texas-based company. He declined to comment on demand for the Venue Pro since its debut or whether it would bid for RIM.

?Dell is clearly trying to build a handset business and found it difficult,? said Jeffrey, who is based in New York and has a ?neutral? rating on RIM. ?That would be a big strategic decision on their part.?

RIM has also built its own network of e-mail servers that make sending and receiving messages more secure compared with other smartphones, according to Jeffrey.

?RIM does have some unique assets,? he said. ?There are clearly some strategic benefits such as the enterprise position and the security advantages that they?ve got.?

However other analysts say it is highly doubtful that Dell might buy RIM. Would RIM plus Dell be any more competitive with Apple and Android than RIM alone?

Why Microsoft?

Maybe Microsoft will become the savior. It does have huge reserves stored and this might help its smarphone ventures.

Microsoft lost almost half of its own market share for mobile operating systems in the first quarter, falling to 3.6 percent from 6.8 percent a year earlier, according to Gartner Inc.

The decline comes after the world?s largest software maker already failed with its Kin smartphone, scrapping the model last year after less than two months on the market.

?Will Microsoft buy RIM? That is a possibility and a fast track for Microsoft to gain a foothold in the mobile hardware business,? says Harry Wang, director of mobile research at Parks Associates, Pachal reports.

Pachal writes, ?Can you imagine Windows Phone 7 in two years, powered by the twin engines of Nokia?s global reach and RIM?s enterprise base? It would be a powerhouse platform, the stuff of dreams for Ballmer?and nightmares for Apple and Google.?

However it still seems to be a rumor.

A blogger wrote about the companies

?Both companies share an irksome problem called Apple. Both companies recently disappointed investors, in part because of this problem. Both companies are struggling because they can?t innovate with the vitality of Steve Jobs and Co. And both companies are desperate for a solution,? You could even argue that it?s a matter of life or death?

PLAN B

Analyst Jack Gold, with J. Gold Associates, however, thinks RIM may have its own Plan B in mind.

RIM is revamping its BlackBerry OS and has ?been on a tear? to acquire a number of companies over the last few years, Gold said in a June 15 newsletter, but it?s unclear whether RIM users will stay loyal to see the company?s plan through to fruition. In which case, said Gold, it may turn to Android for a boost.

The advantage of their new software is that it gives the BlackBerry the potential to have multiple OS running.

A BlackBerry device could potentially run an Android better than a Samsung, Motorola or any other brand. Add to that the fact that it would be able to run the android with complete security and manageability. The kernel in Android could potentially be replaced with QNX neutrino. The result would be a compatible Android platform that can outperform the vanilla android and come with features that are unavailable with android like the BlackBerry Messenger.

This would allow RIM to run the best android in the market.

?At the very least, running in dual-boot mode (both BB OS and Android OS) could open the BlackBerry to a growing array of apps. And RIM would still make lots of profits in the extended services beyond vanilla Android it could offer users.? Gold stateds

With the growing popularity of the Android this would serve as a safety net for RIM if their OS fails to take off. ?This would obviously not be the preferred outcome for RIM but it still makes for an excellent defensive and offensive strategy.

Gold concluded, ?Don?t count RIM down and out just yet!?

SOURCE: Kwicknews, F0rbes, Wall Street Journal, Bloomberg, Connected Planet, Financial Post

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