Buying Up RIM’s Pieces
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Unless Research In Motion (NASDAQ: BBRY) can pull a Blackberry 10 rabbit out of their hat like now, the $518 million first-quarter loss announced last Friday may have sounded their death knell.
Rumors abound as to potential buyers, with Microsoft (NASDAQ: MSFT), Amazon, Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) frequently bantered about. There’s talk of RIM splitting up the company into a separate handset manufacturing business and software business and selling each to the highest bidder. Or maybe keep the company intact and sell a portion to Microsoft, Apple, Google or some other interested party.
So what part of RIM is worth buying and who’d want to buy it?
Forget manufacturing. Plummeting BlackBerry and PlayBook tablet sales translate into a soon-to-be-if-it-isn’t-already obsolete backlog of unsold inventory. And it’s really hard to imagine Apple willing to put their iOS into a BlackBerry.
RIM’s services, though diminished in value, are estimated to be worth anywhere from $1 billion to $5 billion. RIM owns all their networks and servers and they control every bit of BlackBerry traffic. Telecommunications companies pay RIM a monthly subscriber fee, estimated at $4.00 per subscriber. Why would a company want to buy RIM’s network? Opening up the network to other smartphone carriers would attract new users anxious to take advantage of RIM’s secure encryption technologies. Apple, Google and Microsoft have the ability to tweak the encryption software to run on their smartphones, making them logical candidates to acquire RIM’s network and current subscribers.
RIM’s golden egg, however, lies with the patents the company developed internally and acquired through purchasing other companies.
During its heyday, RIM went on a buying spree and purchased companies whose patents helped make it a one-time industry leader. One excellent example is found in the Certicom Corp. acquisition, which became a RIM subsidiary in March 2009. Certicom develops cryptography software featuring elliptic curve cryptology (ECC). Who uses it? The U.S. government, Canada and other NATO allies, for starters, along with General Dynamics, Oracle and Unisys. The NSA alone licenses 26 patents from RIM’s subsidiary. BlackBerrys and PlayBook tablets are the only consumer handheld devices certified for U.S. government use due to their high encryption standard.
So what is RIM's patents worth? Christopher Marlett, CEO of MDB Capital, estimates their value at over $1 billion. Jefferies and Company technology analyst Peter Misek puts their value between $1 billion and $3 billion. At the moment, Microsoft stands out as the most likely buyer. In April 2012, the software titan announced an agreement to buy or license AOL’s patents for $1.056 billion, presumably for the mapping technology. RIM's wireless patents could give Microsoft a much needed boost to its smartphone development.
If the price was right, a bidding war could break out among Apple, Google and Microsoft. The initial cost to acquire RIM’s servers and networks would be offset by the increased revenue received through the existing government and corporate subscribers who depend on the encryption software. Opening up the network to other smartphone carriers would generate new monthly subscriber fees and attract new customers wanting to take advantage of the encryption software. The challenge would be in convincing existing BlackBerry and PlayBook users to switch to one particular smartphone or tablet. The patent buyer could cherry pick among the patents, keeping what they wanted and selling the rest to offset the purchase price.
RIM recently retained JPMorgan Chase and RBC Capital to identify all of RIM’s options to help them decide which course of action would be best. With the BlackBerry 10 release pushed back to 2013, RIM bought just enough time to determine their fate.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.