My friend and former co-worker David D’Souza has been agitating for some time for Microsoft to buy RIM. I’m always arguing against the move. It’s not that RIM doesn’t have some good assets, it’s that cleaning up the financial mess and avoiding the distraction of dealing with the acquisition is more likely to kill Windows Phone than save it. Microsoft does not have the DNA to do this. It hasn’t bought and cleaned up any sizeable failing company, and it has almost no experience dealing with a large manufacturing company!Not only that, any such acquisition is going to hurt margins and perhaps do so for many years. That’s also one of the reasons that Microsoft has, so far, declined to acquire or invest additional funds in Nokia. In both cases should Microsoft (or anyone else) acquire the company they are going to have to spend incremental $Billions to lay off far more people than the companies themselves will do, shutter more plants, support the phaseout of older and non-strategic products, etc. Key executives and dozens of other senior employees will need to be moved into the new business, diverting attention from existing efforts. What all this means is that something that seems to make strategic sense could actually be tactical suicide. And for a CEO, business suicide. Once the excitement wears off Microsoft’s stock price would tank and stay in the doldrums as investors realized what a distraction and resource blackhole RIM would be. And I think every potential acquirer of RIM (or Nokia) sees the same thing.
What Microsoft would be interested from RIM is the backend business and some of the patents. It could use the backend business to boost adoption of Windows Phone 8 and Windows 8 in secure-communications oriented businesses. In essence it could buy the customer base without buying the customer base headaches of the Blackberry phones themselves. But if it did that, then who would take on the phone business? If Nokia were healthier than it would make perfect sense for them to take it. Nokia could then produce a line of Windows Phone 8 powered Blackberries. This dream scenario was rumored to have been explored. I don’t know if it fell through because RIM wasn’t interested in selling for a reasonable price, or if Nokia’s declining health make it difficult for them to take on without more financial assistance from Microsoft. Or that when they factored in after-acquisition costs they could never make the deal work.
So what about other players? Well, they all have the same problem. There is a piece of the RIM puzzle that they want, but not all of it. And no one wants to deal with the mess. Sure RIM itself could clean things up and then pursue a sale, as happened with Motorola. Google didn’t buy the “old” Motorola with all of its problems, it waited until the cleanup was over then bought the Android Mobile Phone company that was left. I think something similar is going to happen with RIM.
If we think of RIM as having two primary businesses, a back-end infrastructure business and a device business, they will eventually be forced to split them. The back-end infrastructure business has a lot of value to multiple players, but the device business? I’m guessing it would be of most interest to a Chinese player who wants a leg up on penetrating western markets. U.S., Canadian, and other western nations are unlikely to allow a Chinese company to buy RIM outright because they rely on the secure infrastructure part of the company too heavily. So one scenario for RIM is to sell the device business to a Huawei or ZTE and make their play as a mobile communications infrastructure company. At that point a Microsoft, Apple, Google, or other player might step in and acquire them.
Are there other possibilities? Well HTC is constantly chomping at the bit to take control of its own destiny and has threatened to build its own OS from time to time. But despite an acquisition being possible on paper there are problems. HTC, while public with a large market cap, is actually a family run company that probably doesn’t have the management depth to take on such a large acquisition. It is also a company that has problems of its own as its market share shrinks in face of an onslaught from Samsung.
Samsung is frequently mentioned as a bidder and I think they keep looking at it. But Samsung already has so many frying pans on the fire in the OS arena (Android, Windows Phone, Bada) that adding BBX to the mix seems like a big distraction. And then there is that cleanup effort that no one really wants. So I think they’d like the patent portfolio and the infrastructure stuff but don’t really care about the device business, putting them in the same camp as Microsoft, Apple, and Google.
Which brings me to the bottom line. I don’t think anyone should, nor wants to, buy RIM. People do, and should, want to buy some of their assets. And so many companies will hover over RIM waiting to see if they can somehow get the pieces they want without all the baggage. But no one will buy the whole company, unless it is out of a bankruptcy court proceeding. At least that’s my guess.