Microsoft & RIM: A Match Made In Desperation?
Richard is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Ask two of my friends whose recent marriages have ended in divorce: They will gladly tell you that playing matchmaker has never been my strong point. But my response to that is, “All I can do is arrange the meeting. The rest is up to you.”
Matchmaking is a popular hobby on Wall Street. Analysts love to look at a company with tons of cash, but which might be lacking in growth, and try to pair it up with another company to see whether its cash hoard can be exploited to once again satisfy Wall Street’s insatiable growth appetite. But this approach doesn’t always work.
For every Oracle (NASDAQ: ORCL) and Sun Microsystems success story, there are those that failed to live up to expectations, such as Hewlett-Packard (NYSE: HPQ) and Palm. And let’s not forget the AOL (NYSE: AOL) and Time Warner (NYSE: TWX) deal that will forever live in infamy. However, the ratio at which these pairings succeed should not preclude others from considering strategic acquisitions.
Consider where Yahoo! (NASDAQ: YHOO) might be today had it accepted Microsoft’s bid several years ago. For that matter, there is also Groupon (NASDAQ: GRPN), which declined a $6 billion dollar bid from Google (NASDAQ: GOOG). With its stock now marred in controversy and facing competitive pressure from (among others) Google, do you suppose its investors are regretting this decision today?
The case for Microsoft
One company that meets the criteria of having large sums of cash with little growth is Microsoft (NASDAQ: MSFT). Though I don’t currently own shares in “Mr. Softy,” I realize that I have spent most of this year coming to its defense for one reason or another. The company’s fundamentals are solid and its shares present considerable amount of value. The question continues to be, where is it going to come from?
I think it is time for the company to consider making an acquisition, and I think a bid for Research In Motion (NASDAQ: BBRY) today would make a lot of sense. Last week investors got a glimpse of Microsoft’s new mobile software. One thing that I noticed is that it was very consumer-focused. While not entirely a bad quality, I wonder if Microsoft will begin to forget where its bread and butter is. The company gets beaten up quite a bit because it is not Apple (NASDAQ: AAPL), and as a result, it sometimes forget just how dominant it is in non-Apple areas such as the enterprise.
I appreciate its willingness to focus on the consumer experience, such as making star pages more customizable, and integrating more social network features. The concern is, it will never overtake Apple in that area – this is no matter how great its phones turn out to be. So is it worth risking trying to overtake Apple while at the same time alienating its corporate clients? Or it can have the best of both worlds by acquiring RIM and its corporate assets.
This is a significant opportunity, and one that I think Microsoft is overlooking in error. It doesn’t need to focus on Apple or even Android. Microsoft should seize the opportunity to acquire the loyal base of not only corporate Blackberry users, but all of the security benefits, messaging as well as RIM’s Mobile Fusion service that comes along with it. What’s more, since RIM will not release its BlackBerry 10 OS until next year, Microsoft might be able to leverage its current launch to convince loyal RIM users who are waiting for the next OS to use Windows phones instead.
Also, one should not overlook the increase in market share that Microsoft is likely to gain in the smartphone market. A recent report showed that although it had only a 3.5% market share across the globe, its growth rate had topped 110%. For these reasons, I can’t ignore how much sense it makes for Microsoft to not only acquire RIM, but also to leverage its existing base of corporate users and grow that portion of its business.
Bottom line
Microsoft needs to realize its biggest assets are Windows and MS Office – dominant enterprise applications. Wanting to be something that it is not and abandoning its lifeline is a recipe for disaster. Buying RIM will give it the benefit of being able to sustain it mobile strategy while leveraging RIM’s existing enterprise presence. If it then wants to focus more on the user experience with Windows phone, then so be it. It has the cash to make this deal happen today if it wants to. Desperation or not, it just needs to realize how much sense it makes.
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rsaintvilus was long AAPL and held no positions in the other stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. 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.
