RIM: A Play For Speculative Investors?

| About: BlackBerry Ltd. (BB)
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by Renee O'Farrell

Blackberry phone maker Research in Motion (RIMM) has had a rough year. Between service failures, disappointing product introductions and a rapidly shrinking market share, the company is a shadow of its former self, and falling rapidly. It still has almost 75 million users worldwide and roughly 17% of the market, but its rapidly falling net income is cause for concern - and not just for investors.

After a dramatic decrease in sales, Research in Motion has announced that it is conducting a major review of its "strategic opportunities." According to the Financial Times, this review includes "the possibility of outsourcing device manufacturing or a sale of the company." While the sale of Research in Motion is not the "main direction" the company is pursuing, it could easily happen. Right now, Research in Motion is priced at just 3.24 times its current earnings, versus its industry's average of 26.17. Also, the company is trading at less than $14 a share, which is firmly near the low end of its 52-week range ($12.45-$64.63). Its price to book value is just 0.70.

Thorsten Heins, CEO of the Canadian smartphone maker, said that "both he and the board believed the best strategy for the company was to press ahead with a turnround [sic], but he acknowledged that if as a result of the strategic review it became clear that it would make sense to sell all or part of the company, 'We would consider it." Heins added, "I recognize these are difficult times for our stakeholders and this is likely to continue for the next few quarters."

That's not to say that there would not be hurdles in selling the company. In as much as the company says it may consider a sale, there could still be some opposition from shareholders. According to the New York Times, "Any potential suitors would most likely face stiff resistance from Jim Balsillie and Mike Lazaridis, the co-chief executives. Collectively they own more than 10%, which makes them among the largest shareholders." Further, Research in Motion is a Canadian company and, historically, the Canadian government "has been increasingly reluctant to let foreign companies buy major domestic corporations." Canada did after all block the acquisition of the Saskatchewan-based Potash (POT) in 2010 when the Australian mining company BHP Billiton (BHP) wanted to buy it - Research in Motion could follow a similar course.

Besides, there is still a chance Research in Motion will turn things around. The company is preparing to "rollout new lower-end BlackBerry 7 devices in the next few weeks," which will make its products more accessible, but it is a long road back - and the rumored interest in the company is big. Amazon (AMZN), Microsoft (MSFT) and Nokia (NOK) each reportedly considered making a bid for the company - and that was when it was trading at $17 a share. The company is priced even lower now. Others say that Google (GOOG) or Facebook could also try their respective hands.

A Chinese cell phone manufacturer looking to gain a foothold in Western markets may also be an option. Take a company like ZTE (OTC:ZTCOF) for example. It has a relatively small foothold in North America and Europe, yet it is the fourth largest handset maker in the world. Buying Research in Motion would allow it to access a huge market. Of course, if a Chinese company tried to buy Research in Motion, it could meet opposition from the American government.

As explained by the New York Times, "the country's military personnel, law enforcement officers and White House officials rely on BlackBerry devices, making Chinese ownership difficult under the technology control restrictions in the United States." Point in fact, just last year Huawei Technologies backed off from trying to acquire certain technology assets from 3Leaf Systems "after the federal government raised concerns about the relatively small transaction."

Of course, whatever company purchases Research in Motion (if it goes up for sale) would be a multi-billion dollar acquisition. "You have to remember that this would take $10 billion, $12 billion, $13 billion," said BGC Partners analyst Colin Gillis. "That's a lot of cash. There's not a lot of people willing to spend that kind of money."

One alternative to an acquisition could be a series of technology licensing deals to boost revenue. Reportedly, there are several companies that have wanted to have such discussions. The Guardian writes that RIM had approached Samsung (OTC:SSNLF), the world's biggest smartphone seller, and HTC (OTC:HTCXF), the biggest seller of Android phones in the U.S., about licensing its forthcoming handset operating system, now due late in 2012." And, Research in Motion already has some agreements in place with Amazon, such as its service that makes Amazon's music catalog available to some Blackberry users. Then, there is Research in Motion's new operating system to consider. The Guardian reports, "RIM could also look at licensing out its QNX operating system after the late 2012 launch of BlackBerry 10, which will be the first smartphones using that software, to give handset makers an alternative to Google's Android operating system."

Research in Motion could also try to sell just a portion of its business, such as its handset business, network services business or patent portfolio. Doing so would allow the company to refocus its efforts on the parts of its business that reflect its core competencies and align its strategic initiatives - something for which shareholders have been pushing.

I'm not entirely convinced that Research in Motion will be able to turn things around by partnering or even selling parts of its business. It seems to me that the name "BlackBerry" has declined in value dramatically in recent years and, while its technology is de rigueur with regard to many corporations and governments, I wouldn't be surprised if all that changed in upcoming years. On the plus side, Research in Motion's CEO seems to be open to a drastic change, and having someone at the helm that is willing to pursue any option that is in the best interest of the company and its shareholders is certainly an asset.

Research in Motion could be a good buy, but it would be largely speculative. Plus, right now, there is nothing to suggest that the Research in Motion's share price is going to see a big boost. The company's efforts could ultimately fail and, in any case, I imagine that the company's share price will fall even lower before any rebound. I recommend keeping a close eye on this stock.

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