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Sale or service licensing appear most compelling options for RIM right now -- RIM is leaning towards licensing

Things have reached the crisis point for Waterloo, Ontario based phonemaker Research in Motion, Ltd. (TSE:RIM).  Once the darling of the industry, pushing the smartphone into the mainstream, the gadgetmaker has since been passed in the demanding handset market by Apple, Inc.'s (AAPL) iPhone and a host of Android phones from Asian gadgetmakers.

I. RIM on Sale?

The dire state of affairs at RIM was highlighted by the company's first GAAP adjusted net loss after years of big profits.  While that loss was driven by a one time charge (otherwise the company would have posted a profit of $418M USD), it nonetheless highlighted the financial fragility of the veteran firm.  

The loss prompted the resignation/explusion of company co-founder and long time co-CEO Jim Balsillie.  And it prompted new CEO Thorsten Heins -- in the uneviable position of trying to right what appears to be a sinking ship -- to talk about something some top investors had long been clamoring for: a sale.

A potential sale received a boost on Friday when Canadian Federal Finance Minister Jim Flaherty said that Canada would not move to block a foreign takeover/purchase of RIM. He commented, "They will be the masters of their own destiny.  We would like RIM obviously to be successful as a Canadian company, which it has been — a very innovative and successful company."

While Mr. Heins insists that a sale is not the leading option for the troubled phonemaker, he acknowledged for the first time that it's an option on the table as RIM conducts an exhaustive review of its business.

One constraint on a possible sale is RIM's unique relationship with the U.S. Department of Defense (DOD).  The phonemaker's encrypted handsets are almost exclusively adopted by DOD officers.  The DOD is among RIM's top sustaining business/government customers, and any possible sale would likely need to pass an exhaustive DOD national security review.

Army officers on BlackBerry
Any possible sale of RIM would likely also require the approval of the U.S. Department of Defense. [Image Source: BlackBerry Cool]

For that reason top potential buyers are believed to largely be American firms, such as Dell, Inc. (DELL) or Hewlett-Packard Comp. (HPQ) -- two veteran personal computer makers looking to refine their business hardware offerings.  Other possible purchasers include Microsoft Corp. (MSFT) whose email and connectivity software solutions could be complemented by RIM's secure services, or Amazon.com, Inc. (AMZN) the world's top e-tailer who continues its push to expand into new markets like connected services.  

An outside candidate is reportedly Nokia Oyj. (HEL:NOK1V), as Nokia has at times looked to add differentiating value-add services to its portfolio as showcased by its acquisition of Chicago, Illinois based navigation-services firm Navteq.

RIM stock jumped on the prospect of a potential sale.

II. RIM is Sticking With Consumer Hardware -- For Now

As with much of its recent troubles, RIM's announcement of examining new directions was marred by poor delivery and confusion.  MSNBC and others initially released reports that made it sound as if RIM had committed to a complete pullout from the consumer market (think HP's webOS).  Actually, RIM merely had decided to "refocus" on its core enterprise business, although consumer sales will continue.

Analysts like Anil Doradla of William Blair were skeptical of RIM's new efforts yielding a turnaround.  In a note cited by the CBC, Mr. Blair comments, "We believe RIM will be playing catch-up for the next year or more, and is subject to further share loss, subscriber churn, pricing pressure, and margin pressure.  In our view, believing in the potential solutions requires a leap of faith that we are not willing to make."

Ironically the shakeup at RIM comes as the company's most attractive smartphone OS (BlackBerry 10), most attractive smartphone ("London"), and most attractive tablet experience (PlayBook OS 2.0) all were headed towards market -- or in the case of PlayBook OS 2.0, just released.  The status of BB10-powered "London" is now somewhat uncertain, although ostensibly RIM will stick to its prior commitment to its launch.

RIM London
"London" faces an uncertain fate at RIM. [Image Source: NeoWin]
 
As an alternative to a sale, RIM is considering licensing its secured services for use with other operating system platforms.  Likely the first target platform would be Android, both because it is the world's most used smartphone platform, and because RIM already has a great deal of experience with the underlying source code. It created emulating firmware to allow Android apps to run on the BlackBerry PlayBook or be easily reprocessed to run with direct PlayBook-centric API calls.

The issue with licensing would be that it would leave RIM's own first-party hardware in a precarious state.  However, it might be liberating for the phone company, who derives most of its revenue from its services, not its handset sales.  RIM had been transitioning from an original equipment manufacturer (OEM) role to contracting original design manufacturers (ODM) for new designs like the PlayBook [source].  

While the company owns the distinction of having the most well-regarded physical keyboards in the industry, it would likely have to turn to ODMs to keep up with its rivals in terms of touchscreen and slim handset design.  At the end of the day, it might simply be easier to quit the handset business altogether and focus on server sales and service sales.

Still, at this point anything -- a sale, a switch to ODM driven handsets, a multi-platform shift to a licensing-centric business -- is possible.  At last count RIM had less than $1.5B USD cash-on-hand to weather the storm, so any sort of non-sale option might require the company taking on debt -- a prospect that may trouble investors.

Source: CBC



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HP ... yeah right!
By drycrust3 on 4/2/2012 3:51:53 PM , Rating: 3
quote:
For that reason top potential buyers are believed to largely be American firms, such as Dell, Inc. (DELL) or Hewlett-Packard Comp. (HPQ) -- two veteran personal computer makers looking to refine their business hardware offerings.

I am quite sure HP don't want to buy RIM. After all, they've recently assigned Palm to the rubbish bin, and they've decided that tablets aren't the way of the future as well.
A better fit might be someone like Google / Motorola, who already make smartphone and have a vast network of servers.




RE: HP ... yeah right!
By chmilz on 4/2/2012 4:28:23 PM , Rating: 2
Amazon phone.


RE: HP ... yeah right!
By retrospooty on 4/2/2012 4:56:30 PM , Rating: 2
"A better fit might be someone like Google / Motorola"

Good point. Or Samsung or HTC. A good strong foothold into the lucrative enterprise market may be what they are looking for. It's all about price though. What would RIM be willing to sell for. If too high price now, wait another 6 months for a bargain =)


RE: HP ... yeah right!
By Manch on 4/3/2012 6:19:42 AM , Rating: 2
MS has the resources to quickly integrate this. They've scooped up Skype, have Nokia who knows how to make great hardware in there pocket. ATT is pushing NOKIA phones hard as there new Halo product, they have several contracts with the DoD, so rolling this into the fold would make good sense.

A phone with secure comm capabilities, a great interface that can run on lower power devices compared to the competition, and not to mention full integration with MS portfolio of other services/apps would be awesome.

Then theres folding all of this into to their vision of Win 8 ruling from the desktop down to the phone. A complete vertical integration of all these services would be a gold mine for them.

Of course if Google/Motorola can do something very similar. If they procure or exclusively license this, then they have even more ammo to fight Apple.


RE: HP ... yeah right!
By phantom505 on 4/4/2012 2:33:31 PM , Rating: 2
If Google has the money and willingness they should jump on it since RIM has descent IP as I recall. Some of it could have expired, but it wouldn't hurt.

Then again, iPhones are so insecure the relevant IP may not matter.

Now if Apple was smart, they'd buy RIM and use the security knowledge to actually make the iPhone not a hazard.


RE: HP ... yeah right!
By Manch on 4/5/2012 2:02:34 AM , Rating: 2
If Apple bought it, they would rename it, claim they invented it, and sue the canadians.


Forgive my ignorance
By FastEddieLB on 4/2/2012 8:19:20 PM , Rating: 2
Why does RIM need the Canadian Government's approval to sell? I don't know much about Canadian law, but this concept confuses me.




RE: Forgive my ignorance
By Ryestag on 4/2/2012 8:32:06 PM , Rating: 2
The CRTC up here is filled with incompetent rule makers that's sole purpose is the 'save' Canadian telecommunication companies from the big bad Americans / Global-National companies.

You can thank them for the lack of competition up here in this market... Bell and Rogers just rape us on monthly bills for our TV / Internet / Wired & Wireless phone.


RE: Forgive my ignorance
By Ammohunt on 4/2/2012 10:06:11 PM , Rating: 2
Strange, i thought government regulation of corporations was the solution to all our economic woes.


Army picture caption
By DigitalFreak on 4/2/2012 8:19:17 PM , Rating: 2
"Is that a Brazilian?"




RE: Army picture caption
By MZperX on 4/4/2012 12:30:48 PM , Rating: 2
Hmm... I wonder why these "Army" folks wear Air Force uniforms.


By Lord 666 on 4/2/2012 2:46:10 PM , Rating: 2
Focus on core business solutions and American company already in bed with DoD.




Any of 'em
By Motoman on 4/2/2012 3:21:41 PM , Rating: 2
...any of the likely suspects I mentioned in a previous RIM article already have DOD contracts - like IBM, SAP and Oracle.

That's not a big deal...I can't imagine that anyone looking to buy RIM wouldn't already be in the US military.




Short sighted investors
By wordsworm on 4/2/12, Rating: 0
"Let's face it, we're not changing the world. We're building a product that helps people buy more crap - and watch porn." -- Seagate CEO Bill Watkins














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