By now we’ve clearly established that Research In Motion (NASDAQ:RIMM) is having a horrible couple of years and that the company seems incapable of digging itself out. The BlackBerry 10 smartphones it has stubbornly held on to as its saving grace have just as stubbornly refused to make an appearance through 2011 and 2012 — and won’t be seen until 2013, if at all.
RIMM shares aren’t even in the same area code, let alone the same ballpark, as their near-$150 highs of only four years ago. Sales are stagnant as customers wait for the new products or simply switch to iPhones or Android alternatives. The company bled over half a billion dollars last quarter. It’s closing its few remaining retail locations and laying off thousands of staff.
But RIM has a loyal (largely corporate) user base of 72 million, operates an envied secure messaging system, has $2 billion in cash (as long as that lasts) and is sitting on a sizable patent portfolio that’s been valued at between $1 billion and $4 billion. It also owns QNX, a company known for producing solid operating systems, particularly in the automotive market. And QNX technology is being used to create BB10.
As I pointed out last week, RIMM isn’t a worthless company, and some companies may see the beleaguered Canadian firm as an acquisition target. Earlier last week, it was Samsung that was rumored to have an interest (a rumor that has surfaced multiple times this year), and then it was IBM’s (NYSE:IBM) turn to be on the prowl. While Samsung has since denied the rumors, snapping up a chunk of RIM could make sense for these companies. As a thought exercise, consider the potential uses Samsung and IBM might have for RIM, especially if they could pick it up as a distressed bargain.
Samsung and RIM
Samsung is the world’s leading manufacturer of smartphones and one of only two companies making any significant money in the business. However, Samsung has been locked in an ongoing legal battle with Apple (NASDAQ:AAPL) over alleged copying of both the physical appearance of its mobile devices and many key elements of the user interface. If it loses, Samsung could end up paying Apple huge royalties, or it may be blocked from selling some devices until changes are made.
In addition, Samsung already pays Microsoft (NASDAQ:MSFT) between $12 and $13 per device in royalties tied to the use of Android.
Snapping up RIM’s hardware and operating systems could theoretically get Samsung out of all these problems and get rid of the costly royalty payments (thereby improving profit margins) as well as losing the dependence on Google (NASDAQ:GOOG) for Android updates.
As an added bonus, those corporate BlackBerry subscribers could represent a huge injection to Samsung’s enterprise efforts, where the vast majority of companies are resisting Android adoption.
IBM and RIM
As IBM boosts its enterprise division and pushes customers to adopt its SmartCloud services for mission-critical systems, it’s no doubt eying the enviable reputation of RIM’s BBM (BlackBerry Messenger Service). Despite having a rough patch of outages recently, BBM is still considered the ultimate in secure corporate communications — a primary reason why BlackBerry remains the platform of choice for many government agencies, right up to the U.S. President.
IBM would likely have little interest in BlackBerry devices themselves, but BB10 and especially BBM would fit in well with its plans — and potentially bring tens of millions of new corporate clients into the fold.
Corporate mergers and acquisitions among technology companies often go sideways (or far worse). For every Apple acquisition of NeXT, there’s Hewlett-Packard’s (NYSE:HPQ) $1.2 billion purchase of Palm or the $6 billion Microsoft paid for aQauntive.
The hurdles that Samsung or IBM would face are considerable:
- Actually transitioning an entire product line to a new operating system is time-consuming (just ask RIM why BB10 is taking so long)
- Integration plans often hit critical technical hurdles
- RIMM seriously lacks third-party developers and app support
- Customers don’t always stick around when a new owner steps in
- Outside of retaining the physical keyboards it made famous) RIM’s handsets haven’t exactly been making waves in terms of industrial design
Either of these companies could end up making a play for part or all of RIM, but the rumors may well come to nothing. At the moment, the main effect has been to boost RIMM’s stock, pushing it to $8.34 after news of the IBM possibility broke, up from $7 at the start of last week (it closed down on Monday, to $8.07).
However, don’t expect the speculation to go away any time soon. The players may change, but the fact remains: Blood is in the water around RIM, and fins have begun to circle.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.