RIM: Amid Outages, Prospects For Finding Buyer Seem Dim

12 Oct

Research In Motion shares are trading lower Wednesday amid growing doubts that the BlackBerry device maker will attract takeover interest. Adding to the pressure are a third straight day of service outages in some markets.

RBC Capital analyst Mike Abramsky notes this morning that service outages that first cropped up in Europe have spread to India and parts of South America; he writes that North American service also appears to have been disrupted this morning for about an hour. The outage outside North America may have hit up to 30-40 million BlackBerry subscribers, he estimates. “These outages create another highly visible PR challenge, coming in markets where the company is still growing,” he writes.

Meanwhile, Jefferies analyst Peter Misek  this morning repeated his Underperform rating on the stock, asserting that any potential bidders for the company will likely wait until the company completes the shift of its handsets to the QNX operating system from the current BlackBerry OS – otherwise, he says, “they will not know what they are buying.” He also thinks buyers will want to wait to see if Microsoft’s Windows 8 becomes the third major mobile ecosystem, “as its success or failure will dramatically alter the strategic situation and RIM’s valuation.” He adds that he thinks it will be “difficult to extract value from RIM in a break up or a management change scenario.”

Misek also thinks it will be hard to find a credible new CEO for the company.

“While investors are very frustrated with Jim Balsillie and Mike Lazaridis, we cannot think of anyone who could take over as a transformational CEO who has significant software expertise and clout with both developers and carriers,” he writes.  “No one at Apple is likely poachable as they all have too many shares, options, and non-compete agreements. Extracting them would likely be prohibitively expensive. We believe MMI’s Sanjay Jha would be the best fit, but based on our checks he is highly regarded within Google and more importantly his ties to QCOM make a move there far more likely. Andy Rubin, the head of Android, would encounter the same issues as Apple executives. That leaves someone from Microsoft and searching through current and past ranks does not lead to a conclusive answer. Robbie Bach may be interested but we have not heard whether he is interested in working again. We would also like to remind investors that current shareholders gave the existing management team and board a 90%+ reelection just a couple of months ago.”

Likewise, he has trouble coming up with a logical suitor.

  • PC makers? Carriers? “HP struggled in mobile with WebOS. Dell would bring few synergies. Other PC OEMs are too small. A purchase by any carrier while bold would likely destroy RIM’s neutral status and severely limit the addressable market as other carriers pull away.
  • Asian manufacturers? “Samsung and HTC are likely too preoccupied with patent litigation to contemplate such a large purchase in the near term. Chinese companies are unlikely buyers as RIM has millions of U.S. government employees as subscribers and national security concerns would be voiced.
  • Internet players? “Amazon and Facebook make a fair bit of sense to us, but we believe the firms are seriously evaluating WebOS as an acquisition or partnership. A move prior to QNX makes no sense as all of Facebook’s apps are becoming optimized on top of iOS and Android code bases and Amazon’s existing tablets (based on Android) would be alienated.”

In a research note earlier this week, Canaccord analyst T. Michael Walkley reached a similar conclusion. “Given our belief QNX has a low probability of emerging as a viable long-term smartphone ecosystem versus iOS, Android or even Windows, combined with our belief RIM will struggle to grow its subscriber base longer term, we do not believe RIM can sell the company at a large premium to the current valuation,” he wrote.

RIMM is down 29 cents, or 1.2%, to $24.12.


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