Acquiring RIM: Better Later Than Now

Poor Research In Motion (NAS: RIMM) . Once upon a time the company walked proud as the high-tech gadget maker, thanks to its signature BlackBerry email devices and smartphones. But time moves fast in the mobile-tech sphere, and before long, the likes of Apple (NAS: AAPL) and Google (NAS: GOOG) swooped in and drained RIM's market share. Now the company seems to be falling apart, with many shareholders staying in purely on the hopes of a takeover by a well-funded rival. That's certainly a possibility, but it's dangerous to hold on for too long, since a suitor might not show up for a while.

Down but not out, for the moment
RIM isn't in desperate straits ... yet. The company still has a lot going for it operationally, including a decent cash pile of $1.5 billion at the end of its most recent quarter, a still-healthy research and development budget, and no debt. It also has plenty of good technology to leverage; its proprietary email system remains popular with many corporations and government agencies throughout the world.

What it doesn't have is a future in the mass consumer segment, which is where the serious money is made. Apple's iOS and Google's Android quickly took over the market, as did their associated hardware. BlackBerry's micro-keypad was cool, but it wasn't as fun as pinching and sliding on an iPhone or a Droid.

An even more potent weapon the big guys wielded was their app ecosystem -- iOS and Android users had and have instant access to thousands of little software programs for their pinching and sliding pleasure. Lastly, Apple and Google each made sure to include email as a key feature of their respective operating systems. So nearly overnight, RIM was stripped of much of its competitive advantage.

As a result, the company's business started to deteriorate, and lately that decline has been gathering momentum. It just posted its first quarterly loss, in a period that saw a nearly 20% chop in revenue from the previous quarter. And market share? It's dropping fast. From last November to this past February, the BlackBerry platform fell from 16.6% to 13.4% of total users. Android, meanwhile, advanced from 46.9% to 50.1% in the same time frame, and Apple increased from 28.7% to 30.2%.

For sale: email system and patents, cheap
The company's new CEO, speaking after those results were released and several high-level, longtime executives left the company, said he wouldn't rule out a takeover of the company. Take that to mean "we'll consider all semi-reasonable offers right away." After all, the company's share price has tumbled even faster than its market share -- a year ago the stock hovered in the low- to mid-$50 range; these days it's lucky if it touches $15.

There doesn't seem to be any sunny news on the horizon that'll reverse that trend. The company is necessarily optimistic about the BlackBerry 10 OS, which will be released later this year. However, a glance at its specs doesn't reveal anything unique or new enough to unseat iOS or Android.

So a "for sale" sign is pasted over the company's name, and that sale is more likely to be made in pieces. Again, RIM has valuable assets such as that proprietary email system and a number of strong hardware and software patents.

Speculation is rife about potential suitors. Microsoft (NAS: MSFT) is a name commonly bandied about, thanks to its hunger to succeed in the mobile segment. Since its mobile operating system has anemic market share and the company needs something, anything to make it competitive in the mobile arena, BlackBerry's assets could be attractive. The problem is, Microsoft would have to labor to mate those goodies to its existing system, which would eat up precious time and capital.

Nokia (NYS: NOK) is another company mentioned as a possible acquirer. The timing isn't good, though, as Nokia's new phone for the U.S. market is powered by Microsoft's OS. And similar to its partner, Nokia would have a lot of work to do and investments to make to integrate RIM's assets into its systems.

A buy on the decline
The bigger problem with an acquisition is that, even at the current diminished stock price, RIM is expensive. The current market cap is around $6.6 billion. OK, that's small potatoes compared with Apple or Google, but not compared with their cash positions. Apple had $10.3 billion in the green stuff at the end of its most recent quarter -- would it really spend a big chunk of that to buy an email system, some patents, and a bunch of business/public-sector clients that very likely will migrate to it anyway?

Microsoft and even Google have war chests almost as big as Apple, and Nokia also sits on billions. All three are strategic and careful investors, though, and probably won't spend the kind of money RIM would cost to buy the shell of a deflated company.

So RIM will probably stagger on for a while, at least until the BlackBerry 10 comes out, though it's doubtful it'll be captivating enough to woo customers away from iOS and Android. It's even more doubtful that the company will pull an ace out of its sleeve to push its stock higher. Look for RIM shares to continue their decline, with a big-wallet acquirer showing up only when the price dives low enough to make a takeover worthwhile.

Speaking of buying tech, there's a company we really like that's going to be part of a trillion-dollar (yes, trillion) revolution -- and you can read about it in this free report.

At the time thisarticle was published Fool contributorEric Volkmanowns none of the stocks mentioned in the story above. The Motley Fool owns shares of Microsoft, Apple, and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, Microsoft, Nokia, and Apple and creating a bull call spread positions in Microsoft and Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.