Analyst urges RIM to sell BlackBerry unit
Pegs windfall at about $7.5 billion U.S.
Sees spinoff as defence against big rivals
TYLER HAMILTON
TECHNOLOGY REPORTER
Research In Motion Ltd. could get $7.5 billion (U.S.) and better defend itself from rivals such as Microsoft Corp. by selling off the BlackBerry device business and focusing on software, says one financial analyst.
Ray Sharma, wireless analyst with GMP Securities Ltd. in Toronto, wrote in a research brief yesterday that Waterloo-based RIM could benefit strategically by splitting itself in two in the face of heightened competition from larger players, including Microsoft, Motorola Inc. and Nokia Oyj.
His estimate on the value of such a split was worth about $8.7 billion (Canadian) at yesterday's exchange rate.
"Investors are increasingly concerned regarding pending competition," wrote Sharma. "Therefore the timing may be prudent to maximize value by selling the hardware division to a larger-scale supplier."
Without the hardware business, Sharma estimated, RIM's software business, which consists of licensing revenues and BlackBerry server-software sales, would be valued at $11.3 billion (U.S.).
He compared RIM's situation to the early days of Apple Computer Inc. and the limitations of its decision to keep hardware and software under the same corporate umbrella. RIM, by selling its hardware business, could more actively expand the company's licensing program with other hardware makers.
"Apple never did split the company in two and academics as a consensus — in theory — believe that the company would hold a much more (significant) force in personal computing had (it) allowed its software division to spread among other hardware suppliers," wrote Sharma.
Last Wednesday, RIM reported second-quarter profit of $111.1 million, up 57 per cent from a year earlier.
Revenues were up 58 per cent to $490.1 million, boosted by the addition of 620,000 new BlackBerry subscribers in the quarter.
Despite RIM's strong financial performance, analysts and investors were expecting stronger subscriber growth.
The company's stock fell nearly 10 per cent the next day on concerns that growth may be slipping amid a more threatening competitive landscape.
By many accounts, the biggest threat to RIM is Microsoft. The software giant has over the past few months struck partnerships to place the Windows Mobile 5.0 platform as the core software for Motorola's new Q device and for a new version of Palm Inc.'s popular Treo device. Both products have QWERTY keyboards and have been touted as potential "BlackBerry killers."
Barry Richards, a wireless analyst with Paradigm Capital Inc. in Toronto, said it's too early to draw conclusions about the impact of competition on RIM's business, given that the company's shipments of BlackBerry devices in the last quarter were up 74 per cent and subscriptions were up 99 per cent compared with a year earlier.
"The company is executing brilliantly right now, so I wouldn't change anything," said Richards, pointing out that RIM's margins have been improving every quarter.
"I don't think we buy ourselves so much by splitting the company up."
While he doesn't disagree with Sharma's valuation of RIM's hardware and software businesses, Richards said it's too soon to start talking separation.
"If you go back two years ago, where RIM had no earnings and was trading at 10 times sales, when it was growing fast but not making money, then this would all make sense," he said. "Some people have lost track that the company will have more earnings this year than it generated in revenues two years ago."
Sharma, making clear in his report that his analysis was an intellectual exercise, said the timing is right for RIM to at least consider the sale of the hardware business.
"While the smartphone segment is still far from commoditization, increasing competition may make this business more valuable in the hands of a larger (equipment-manufacturing) organization," he wrote, hinting that Nokia may be best positioned to benefit.
Additional articles by Tyler Hamilton |
