Has Research In Motion Bottomed Enough for a Buyout?

| About: BlackBerry Ltd. (BBRY)

The past few trading session haven't been kind to Research in Motion (RIMM); the stock has been down almost 20% since its dreaded earnings announcement and guidance issued last week. The latest bounce may be encouraging, as the stock closed up 10.25%, and closed at the session's highs. The gains made mostly likely occurred for the following reasons:

  • Cost-cutting is going to come into effect by "streamlining" its employees. That's just a nice of saying you're fired.
  • Takeover rumors, because at this point Research in Motion is not a standalone company. I have said this before in previous comments about Research in Motion. And no one wants to go home short.
  • As long as it's cutting costs, it may be time that both Mike Lazaridis and Jim Balsillie, RIMM's CEOs, get "streamlined" too, allowing for better ideas, leadership, and vision.

Cost-cutting efforts work hand in hand. They cut fat by lowering expenses and get rid of non-essential divisions and jobs. This should make the company appear to be more attractive to a potential suitor by scaring the shorts and making them cover, at least temporarily.

Here's a list of reasons why RIMM is in play:

  • RIMM has no debt, a future p/e of 9x and future price to revenues of less than 1x.
  • RIMM"s market cap is now under $15 Billion.
  • RIMM controls 8% of the hardware market, and 25% of the smart phone market.
  • RIMM has excellent branding and inroads when it comes to the "corporate client."
  • RIMM's new Playbook note pad could make an excellent product line for one of the companies listed below to venture into.
  • QNX, RIMM's new Blackberry operating system, is where the bulk of RIMM's R&D is being spent. A discontinuation of QNX and elimination of more employees could add value to the equity side by reducing expenses and preserving assets.
  • RIMM has over $4 in cash per share.

Here are the potential acquirers:

Hewlett-Packard (NYSE:HPQ) has been talked about in the past, but with the recent acquisition of Palm and its new Slate tablet, it is highly unlikely.

Dell (NASDAQ:DELL) is another company that is similar to Research in Motion, in the sense that its market cap and market leadership have been eroding over the past few years. An acquisition could help it regain leadership, but like H-P, Dell is highly unlikely as it's ventured into the hardware side of the smart phone and tablet market itself. We'll have to rule Dell out. But Dell better also be careful that it will be able to survive as an independent company as well.

Apple (NASDAQ:AAPL) would certainly be ironic, as five years ago there were only two players (APPL & RIMM) in the now extremely crowded smart phone space. Apple could conceivably buy it to get RIMM out of the way, as it's been a thorn in its side; to enter into the corporate and business side of the market, making it more than a "gadget" company; and/or to create an iPhone / Blackberry combination that could be a dominant force in the smart phone market and winning back market share from Google's (NASDAQ:GOOG) Android.

I still view this as extremely unlikely union because of the Playbook factor, but I have warmed more to this becoming a potential reality after RIMM's earnings.

Microsoft (NASDAQ:MSFT) is our most logical choice, and what I have been saying all along. Let's look at the similarities between Microsoft and Research in Motion:

  • Poor innovation and execution from both companies.
  • Lack of leadership from the CEOs -- all three of them.
  • Stocks that have been dead money since 2006.

Microsoft has to do something with its $50 billion in cash and another raised or special dividend only proves that Microsoft's best days are long gone. Microsoft has been wanting to get into the smart phone and hardware arena for years with products like the X-Box, Zune, and Kin.

As already mentioned, RIMM is also unveiling a new operating system, QNX. QNX could be an o/s that Microsoft could use alongside of Windows 7, giving the consumer a choice -- a novel idea for Microsoft. This combination would not be a monopoly, as many have suggested, as the two combined would still have less market share than Google's Android -- 32% versus 36% respectively.

The other hardware product Microsoft would get would be the Playbook. The Playbook could directly compete with Apple's iPad, with a better distribution channel. Nokia's (NYSE:NOK) products don't fit into Microsoft's core businesses the way Research in Motion's would.

We all know Research in Motion will not exist as an independent company in the near future; we just don't know how it's going to end.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.