RIM Weighs Bleak Options
By WILL CONNORS, ANUPREETA DAS and GINA CHON
Wall Street Journal
Updated March 30, 2012, 7:35 p.m. ET
Research In Motion Ltd.'s RIMM +7.06%new chief executive faces two bleak options: Attempt a bold turnaround of the embattled BlackBerry maker, or find a willing buyer. Neither will be an easy task.
RIM said sales of BlackBerrys fell sharply in the latest quarter, leading to the company's first revenue decline in seven years. Its subscriber growth rate from the previous quarter also hit an all-time low of 3%. And two of RIM's top officers stepped down, leaving RIM's executive bench as shallow as it has ever been.
Meanwhile, morale has flagged amid the unrest, according to executives inside and outside the company.
At a dinner meeting in February between RIM's chief technology officer, David Yach, one of the executives who left Thursday, and chief information officers from companies and government agencies, including the Department of Defense, the mood from the RIM side was somber, according to a person who attended the dinner.
"It was like going to a wake," this person said. A RIM spokeswoman confirmed Mr. Yach was at the meeting, but said she was unable to confirm the details.
The turmoil has ratcheted up pressure on RIM's rookie CEO, Thorsten Heins, to execute flawlessly on what will be the company's most important product launch, the new BlackBerry 10 operating system.
Mr. Heins said Thursday RIM is still planning to roll out new BlackBerry smartphones later this year. But RIM also said it was conducting a "comprehensive review of strategic opportunities." Mr. Heins, asked specifically about a sale, didn't rule it out.
RIM hasn't actively sought financial advice on its options yet and may not go down the path of a sale at all, according to people familiar with the company's thinking.
Mr. Heins' willingness to consider a wider range of options than his predecessors gave RIM shares a lift on Friday. The stock gained 7% to $14.70 in New York.
In an address to RIM employees Friday morning, Mr. Heins said the company would be run as a "leaner" ship going forward, but didn't warn of additional layoffs, according to a person familiar with the matter.
Mr. Heins also hasn't yet appointed a chief marketing officer, one of his first pledges after succeeding former co-chiefs Jim Balsillie and Mike Lazaridis earlier this year. At a time of distress, he will also now need to recruit executives to fill the CTO and chief operating officer positions.
As long as the odds of a turnaround seem, a sale isn't a sure thing either.
The company's market capitalization hovers over $7 billion, a big bite for any buyer to swallow. Some bankers said there would be few buyers at that price tag for the whole company.
The exception would be giants like Microsoft Corp. MSFT +0.42%and Nokia Corp. NOK +1.29%The two explored a joint bid for RIM last year, according to people familiar with the situation, but those talks were preliminary and didn't lead to a bid.
Nokia has adopted Microsoft's operating system for its latest smart phones. Given that close partnership, the two could make a coordinated approach, if they decided to bid, according to people familiar with the situation.
If they jointly bid, the two companies would likely scrap RIM's mobile operating system and instead equip BlackBerrys with Microsoft's Windows software, with Microsoft taking over RIM's enterprise network, these people said.
RIM says it doesn't comment on rumors and speculation.
If RIM's market cap continues shrinking, some bankers and analysts said RIM could get small enough for someone to buy the company just for its patents. Among the most valuable are its patents around security.
Should RIM decide to put its intellectual property portfolio up for sale, there could be several potential buyers.
Still, even the enterprise business is under long-term threat as corporate customers offer employees the option of using devices other than BlackBerrys for work.
Technology and telecommunications companies have sought to beef up their patent holdings in recent years to protect themselves from lawsuits alleging patent infringement. As a result, many companies, including AOL Inc., AOL -1.66%are exploring potential divestitures of their technology patents.
A key challenge for a foreign buyer could be the Canadian government, which requires that foreign companies demonstrate a "net benefit" to Canada in any big takeover deal. A foreign buyer may be more palatable if it teamed up with a Canadian company.
Legal experts say a buyer could also make promises to keep the headquarters or a large number of employees in Ontario.
Prime Minister Stephen Harper has said he hopes to see RIM grow as a "Canadian company," a phrase Canada's finance minister repeated to reporters Friday. But Finance Minister Jim Flaherty also said RIM "will be masters of their own universe."
Even companies from countries with strong ties with Canada, such as Microsoft, would face scrutiny. Canadian officials would likely weigh national security concerns alongside economic ones. In 2008, the Canadian government rejected New Jersey-based Alliant Techsystems Inc.'s ATK -0.44%$1.3 billion bid for MacDonald Dettwiler and Associates Ltd.'s MDA.T +2.30%satellite business.
A sale isn't the only strategic option RIM has.
As part of its review, RIM itself might decide to close parts of its business to focus on its few remaining strengths, though no decisions have been made, a person familiar with the company's thinking said.
The handset business, for instance, has been hurt by competition from Apple Inc.'s AAPL -1.69%iPhones and Android-based phones that have features customers want, and RIM could decide to pull out of it entirely to focus on its core enterprise network assets, which include the networks over which emails get sent, some people said.
Last year, the company had received queries from financial investors, including sovereign wealth and pension funds, offering to put in cash in exchange for a minority stake, but RIM turned down those offers, according to people familiar with the matter.
These people said it was possible such efforts could be revived.
—Anton Troianovski contributed to this article.
Write to Will Connors at will.connors@wsj.com, Anupreeta Das at anupreeta.das@wsj.com and Gina Chon at gina.chon@wsj.com
A version of this article appeared Mar. 31, 2012, on page B1 in some U.S. editions of The Wall Street Journal, with the headline: RIM Weighs Bleak Options.
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