Seeking Alpha
Long/short equity, deep value, growth at reasonable price
Profile| Send Message|
( followers)

When shares of beleaguered tech giant Research in Motion (RIMM) touched $17 the other day, I pulled out a calendar and started counting down the days toward its demise. I am not suggesting that such a specific event will occur (though it would be tough to argue against), but I wanted to see how long it will take before anything of relative significance occurs in the company. I’ll let you define “significance.” But for RIM on falling below its book value, it is clear that as a stand-alone issue, the game is over.

RIM’s Reality

As with Palm before it, Research In Motion is turning out to be “the little engine that simply can’t.” There is really no other way to put it. While its management continues to fend off rumors of the company’s demise, I continue to believe that the only way RIM can avoid its fate is by being acquired or finding “the next big thing.” As investors, we have to project what is likely to occur first. In the land of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG), can anyone have any level of confidence that RIM can “out-innovate” either company?

With $2 billion in cash, RIM is not going away tomorrow and the company has an IP estate that could yet deliver competitive devices. Even with my doubts for RIM’s ability to survive, I have to remind myself that a decade ago very few people thought that Apple or even Motorola (NYSE:MMI) had anything special left until their devices hit the market. But, then again, as this conversation started, there was Palm that proved that certain fates are avoidable.

What Could Save RIM

Aside from an acquisition, the company is trying to slash expenses and increase profits cutting an unspecified number of jobs as part of a "cost optimization program." It also announced plans to buy back as much as 5% of its outstanding common shares. The repurchase of these shares were said to have started after July 10 and will remain in place for up to 12 months or until the purchases are completed. So while this initiative may add some immediate value to the stock, it does not change the fundamental and execution flaws of the company.

I got beaten up pretty badly for suggesting that Microsoft (NASDAQ:MSFT), Dell (NASDAQ:DELL) or Cisco (NASDAQ:CSCO) should acquire RIM. In a recent article, I said the following:

With the company now looking beaten-up and bruised, it should be time to consider that it may be valuable to another entity – clearly RIM has lost its ability to be self sustaining. In terms of a potential M&A, it is now a matter of when, not if. In that discussion, there should be several names to consider. Microsoft should be at the top of the conversation, as well as Hewlett-Packard (NYSE:HPQ), Dell and Cisco.

The premise was that the acquiring companies have been huge tech disappointments for quite some time and I think a RIM acquisition would present a tremendous opportunity at redemption. In order to move forward and reverse the malaise that they have suffered over the past several years, RIM just might be the key for the acquiring company as well as its own solvency.

Another event that could help RIM is any potential declines in Apple’s growth. In a recent article by Seeking Alpha contributor Markos Kaminis, he made the following points:

  • “How long can this kind of growth for this sized company last anyway? Yahoo Finance has Apple’s earnings growth for the last five years at an astounding average annual pace of 61.15%. The analysts’ consensus for the next five years is 22.5%, again based on Yahoo Finance and its data sources. The P/E ratio for Apple is only 14.6X, giving it a P/E/G ratio of 0.65, which under most circumstances would scream buy to me."
  • "The problem is that Apple is now charged with defending large market share positions in its mobile phone and tablet operations. The tablet market position in particular might not be defendable, given capable competitors. The company is set to release a new iPhone on October 4, which some say will be radically new and remarkable; others see the release as simply an upgraded product."

While I don’t necessarily agree that any declines in Apple’s market share might be imminent, Markos does offer a very compelling argument. I’ve said this previously, prolific empires simply do not last and it is no coincidence that Apple’s empirical rise parallels the events that have caused the struggles with RIM. So is it possible that any sudden hiccup with Apple can re-open the door for RIM? Yes, it’s possible, but then again, there was Palm that could not survive even with an acquisition by Hewlett-Packard.

If RIM is not going to be acquired, it should consider doing something radical, like grow its sales. I know this is easier said than done as it provides evidence of this each quarter. But doing something “radical” should not be out of the question. I have said this before - it should consider acquiring a company such as Sirius XM (NASDAQ:SIRI) to make it more ubiquitous in the automobile and leverage its existing BBM music service. This would present a significant increase in its music service offering while helping it break away from a floundering enterprise market where it is losing share to Apple each quarter – a reality that continues to remind me that RIM is Palm 2.0.

Disclosure: I am long SIRI, CSCO, AAPL, MSFT.

Source: Palm 2.0? The Realities Facing RIM