Will RIM End Up In Dell’s Arms?

Research in Motion (NASDAQ: RIMM) was counting on the BlackBerry Playbook to pull them out of their downward spiral. But there was only a lukewarm reception to the Playbook, and RIM’s future continued to look glum. Gartner estimates that Apple’s iOS will continue to dominate the worldwide media tablet market through 2015. iOS will account for 69% of media tablet operating systems in 2011 and represent 47% of the media tablet market in 2015. Other researchers estimate that Apple iPad sales will reach 24 million this year. Playbook will be a significantly smaller player with 2 million sales, followed by Motorola Xoom’s 1.75 million units.

Besides the tablet market, the smartphone market is also becoming tougher. According to Gartner, RIM’s share of global smartphone sales fell to 12.9% in the first quarter of this year compared with 19.7% a year ago. Compare that with Android’s meteoric rise from a 9% share a year ago to a 36% share last quarter; Android became the leader in the smartphone OS market. Symbian’s share fell from 44% last year to 27% this yead while Apple continued to grow and captured a 17% share compared with 15% a year ago. To make matters worse, the BlackBerry OS 7 device launch has been delayed, all while Apple is working to release two new iPhones later this year. One of these phones is aimed at the mid-range to cater to the worldwide prepaid market. Analysts expect this iPhone to have more than 1.5 billion unit sales.

RIM’s Financials
Q1 revenues grew 16% over the year but fell 12% over the quarter to $4.9 billion. By segment, hardware contributed 78% to overall revenues, 20% by service, and 2% by software and other revenue. By region, revenues from outside the U.S. and Canada grew 67% over the year. Net income of $695 million fell from $769 million reported a year ago. For the current year, the company projected revenues of $4.2 billion to $4.8 billion with EPS of $5.25 to $6.00.

During the quarter, the company sold around 13.2 million BlackBerry phones, compared with 14.9 million sold in the previous quarter. This was the first time since 2005 that BlackBerry sales have fallen sequentially. Playbook sales of 500,000 units exceeded market forecasts of 350,000 units.  However, the market has been generally disappointed with the Playbook.

It was even more disappointed by RIM’s current quarter Playbook sales projections. Earlier this year, RIM had estimated Playbook to record sales of 2.4 million units during the current quarter. The company revised those expectations downwards to a mere 800,000 to 900,000 units in the quarter.

RIM’s Acquisitions
Meanwhile, RIM continued to acquire to help improve their product offering. Last quarter, they acquired Tungle, a Canadian scheduling application. RIM will be looking to leverage Tungle to add cloud-based, cross-platform calendar capabilities to the BlackBerry platform.

They also acquired ubitexx GmbH, a German provider of device management solutions. RIM plans to launch the multi-platform BlackBerry Enterprise Solution later this year. The ubitexx acquisition will help their enterprise customers securely manage Apple iOS and Google Android smartphones and tablets. The BlackBerry Enterprise Server management console is expected to be an expanded platform that will give IT administrators the ability to manage devices, distribute software and application, secure and deploy IT policies over the cloud.

And, earlier this month, they acquired social gaming company, Scoreloop AG for $71 million. Munich-based Scoreloop was founded in 2008 and is known for their cross-platform social and collaborative gaming and adding social elements to a game. Through the acquisition, RIM will be able to add to the much-lacking mobile game elements of their BlackBerries.

RIM’s Struggling App Market

RIM is also under pressure to retain workers. They are losing developers to the more lucrative Apple iOS and Android app development companies. Earlier this month, RIM claimed to have more than 35,000 apps in its BlackBerry store, compared with 25,000 in March. But that number is still short of Android’s 200,000 apps and 425,000 in Apple’s App Store.

RIM is also losing other stakeholders. The COO, Don Morrison, announced his exit plans this month. The largest shareholders are also expected to be looking at a way out. Jarislowsky Fraser Ltd., one of the company’s biggest investors, has already reduced his stake to half. All the factors have led to their stock spiraling to 52-week lows. Many believe that RIM may be a potential takeover target, and Microsoft or Dell may just be waiting on the sidelines to see their value fall further to strike a better deal. Microsoft, however, is in bed with Nokia, and I think, if they acquire anybody, they will be acquiring Nokia. Dell, I have said for a long time, could acquire RIM.

Dell needs a strategy beyond the computer to establish their convergence strategy. Despite the decreasing market share, RIM does come with an established smartphone device which will help Dell’s entry into the tablet and smartphone world. Also, RIM comes with a strong international presence and an excellent e-mail system. The merger will also help Dell compete with HP, which has established a relative lead through the Palm acquisition.

Their stock is trading at $28.24 with a market capitalization of $14.8 billion. It was at a 52-week low of $25.82 earlier this month. Last quarter, Dell had a cash and cash equivalent balance of $14 billion and currently has a market capitalization of $30 billion. Surely it can afford to buy RIM.