Following on the heels of a Citigroup Inc. (NYSE:C) analyst downgrade on BlackBerry smartphone maker Research In Motion Ltd. (NASDAQ:RIMM) earlier in the week, The Wall Street Journal's Heard on the Street column took a further stab at the Canadian phonemaker, warning about the growing competition from Google Inc. (NASDAQ:GOOG)-powered Android smartphones from Motorola Inc. (NYSE:MOT) and others. The story stops short of saying RIM could be put in play, but it clearly states to expect weakening share growth as revenues also weaken. The Citi analyst lowered RIM's target share price to $50, which prompted a large sell-off this week -- even as other analysts maintain their nearly double price target, notes Barron's Tech Trader Daily Blog. Now RIM is buying back $1.2 billion in shares, but is it enough to stem the slide and avoid the company being put in play?
While Apple Inc.'s (NASDAQ:AAPL) iPhone is the standard to measure all consumer smartphones, the BlackBerry continues to dominate the enterprise market. The nascent Android phones so far have focused on the consumer side, nipping at the heels of Apple. Nonetheless, Heard argues that future smartphone growth is in the consumer market and not the enterprise. Additionally, BlackBerry's lack of strong Web offerings like the iPhone and Android phones have reportedly led to weak customer satisfaction among consumers choosing BlackBerries, notes the Heard story.
RIM has slowly been attempting to rectify the problem. Over the summer it acquired Torch Mobile, a mobile Web tools developer, according to The Deal Pipeline (subscription required). How soon that will result in improved Web applications on BlackBerry is anyone's guess.
So if BlackBerry's earnings decline as it is squeezed by rising competition as Heard suggests, might it be in play? Who would bite? The likely buyers are those with the interest in enterprise markets, namely Microsoft Corp. (NASDAQ:MSFT) and Hewlett-Packard Co. (NASDAQ:HPQ).
Microsoft is the most commonly rumored bidder. There are a few different rationales for a Microsoft purchase. One suggestion floated last year is to take out RIM and supplant it with its Windows Mobile operating system. However, at a $50 a share price tag, that's an expensive acquisition just to eliminate a rival -- not to mention one that could raise the ire of antitrust hawks. On the other hand, RIM's tight integration with Microsoft's Exchange Server makes it an ideal platform to soldier on under Microsoft's tutelage.
Meanwhile, Microsoft is not the only enterprise behemoth with a tight link to RIM. When Hewlett-Packard acquired Electronic Data Systems
Corp. for $13.9 billion last year, it inherited an existing
relationship with Research In Motion that it has subsequently extended in May. It certainly is not a stretch to imagine HP taking over RIM to expand in the smartphone category, especially in light of reports that rival Dell Inc. (NASDAQ:DELL) is preparing an Android smartphone.
An acquisition certainly depends upon the direction of RIM's shares, so if they continue their retreat, strategics will certainly be calling the Waterloo, Ont.-based company. - Matt Wurtzel
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