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Acquire RIMM For Patent Portfolio?

Posted on Tuesday, Dec 20th 2011

It does not seem that Research in Motion’s (NASDAQ:RIMM) shaky position will improve anytime soon. According to research firm, Canalys, the company’s BlackBerry phones accounted for a mere 9% of the smart phone market in the U.S. during the third quarter of this year, compared with a 24% share reported a year ago. Android devices continued to dominate the U.S. market with more than 70% market share. Among devices, HTC took the lead with 5.7 million units shipped last quarter, followed by Samsung’s 4.9 million units. Apple slipped into third place with 4.6 million units as consumers waited for the launch of the new iPhone 4.

RIMM’s Financials
RIMM’s Q3 revenues fell 6% over the year to $5.17 billion, missing the market estimates of $5.27 billion. EPS of $1.27 was ahead of the Street’s projected earnings of $1.19.

For the current quarter, they projected revenues of $4.6 billion-$4.9 billion with an EPS of $0.80-$0.95. The Street was looking for revenues of $5.1 billion with earnings of $1.18 per share. They expect to ship 11 million-12 million phone units this quarter, compared with the market’s projections of 13.1 million units.

RIMM’s Product Delays
The biggest disappointment in the quarter, though, was the announcement of product delays by the company. The next lineup of BlackBerry phones is now expected to be out only by the end of next year. The market was looking for an earlier release to help RIMM compete with the growing share of both Android-based devices and the iPhone. The new phones will come loaded with BlackBerry 10, the new OS, expected to give the phone added capabilities similar to those of the iPhone and Android OS.

Analysts also believe that RIMM has confused consumers by offering 37 different phones, an approach which not only makes it difficult for the buyer to pick one, but which have different keyboards, screen sizes and screen types, which makes it more time-consuming and difficult for develops to test and create BlackBerry apps. As both Apple and Android devices have many more apps in the marketplace, consumers do tend to prefer them to BlackBerries.

Besides the BlackBerry, RIMM has also delayed the upgrade of the PlayBook tablet’s OS till February 2012. The current version of the OS lacks critical built-in apps including e-mail, calendar and contacts. But, even if RIMM does finally launch the upgrade next year, the OS will still miss out on BlackBerry’s popular app BlackBerry Messenger. Messenger is a private network service that lets BlackBerry users chat and exchange photos and videos with each other. What is more so, the service is mostly provide free of cost by mobile networks. Disappointingly, RIMM is still working on putting the Messenger app on their Playbook OS.

Merrill Lynch believes that 2012 will see strong growth of the tablet market with the industry’s unit sales forecasted to reach under 1 billion units from just over 60 million units this year. The newly launched Amazon Kindle Fire is expected to show strong sales, while Apple will continue to hold more than 60% of the market. BlackBerry’s Playbook is expected to be a weak performer, and the current delay in the OS upgrade is not going to help that position, either.

RIMM’s stock is trading at $12.89 with a market capitalization of $6.76 billion. It is up only pennies from the new eight-year low of $12.80 reached yesterday.

Analysts believe that RIMM may very well be headed the Palm way and may be a good acquisition target. Names of Apple, Microsoft and Amazon have been proposed by ThinkEquity analyst Mark McKechnie who believes that the three may “benefit from RIMM’s deep wireless data patent portfolio, carrier and enterprise deployments, and hardware expertise.” I believe that Dell is also a strong contender, provided RIMM is able to come up with that promised OS. I don’t see Apple acquiring RIMM, but Microsoft is a reasonable possibility.

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