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Cisco's RIM Shot?

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Nothing can quash the age-old rumor of Microsoft (Nasdaq: MSFT  ) buying Research In Motion (Nasdaq: RIMM  ) faster than talk of a new suitor.

UBS analyst Maynard Um is suggesting that Cisco (Nasdaq: CSCO  ) would be an even better fit for the BlackBerry maker.

Now keep in mind that Um isn't privy to insider chatter. He's not pretending to crank up the rumor mill. He's just dreaming out loud, a matchmaker from the sidelines if you will.

He believes that RIM would dovetail perfectly with its Flip digital camera line. Now that Apple (Nasdaq: AAPL  ) is cramming reasonable quality video cameras into its iPhone and iPod touch lines, Flip is exposed as a one-trick pony in a Swiss Army knife world.

There are synergies here -- from RIM's mobile voice system to Flip's video processing technology -- that can mesh together nicely.

Obviously, it would be stupid for Cisco to throw even more money at what is shaping up to be a bad initial acquisition of Flip's parent company. However, Um points out that $33 billion of Cisco's boatload of cash is offshore. Buying Canada's RIM would be a useful way to put that money to work without initiating the taxing repatriation process.

Um argues that the deal only makes sense if the valuation is right. Thankfully, RIM is pretty cheap these days. The BlackBerry giant is still growing, yet it's trading for just eight times this year's projected profitability.

"I'm fairly certain they (Microsoft) have a standing offer to buy them at $50 (a share)," Canaccord Adams analyst Peter Misek told Reuters two years ago.

Well, that obviously never happened. RIM is now below $50 -- where it has been through most of the past two years -- and Mr. Softy hasn't stepped up, even though RIM is larger and far more profitable today than it was in 2008.

I'll have to admit that Cisco does make sense. RIM's shares are depressed, as worrywarts feel that slicker smartphones will eventually find BlackBerry usage peaking. However, RIM remains a force in its enterprise stronghold. Cisco can help, having the muscle and IT street cred to penetrate deeper into corporations with connectivity needs.

Just as Hewlett-Packard (NYSE: HPQ  ) is rolling out the Palm Pre 2, Apple is selling millions of iPhones monthly, and both Google (Nasdaq: GOOG  ) and Microsoft are making waves with their mobile operating systems, tech bellwethers belong in the smartphone space.

Come on in, Cisco. The pool's crowded but the water's heating up.

Would Cisco be a good suitor for RIM? Share your thoughts in the comment box below.

Google and Microsoft are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. The Fool has written calls (Bull Call Spread) on Cisco Systems. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.

Longtime Fool contributor Rick Munarriz doesn't own a BlackBerry and he's not fond of blackberries. He does not own shares in any of the stocks in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 20, 2010, at 1:51 PM, BioBat wrote:

    RIMM had a good run, made a great product but got cocky and lazy, and hit a brick wall called the iPhone.

  • Report this Comment On October 20, 2010, at 3:15 PM, Aeoran wrote:

    If payroll and maintenance are draining "the resources that are required to innovate and compete," as InfoThatHelp postulates, then the numbers are certainly not showing it: return on equity has actually improved to a sky-high 42% (see for 'Q3 2010).

    I don't know if RIM is offering "nothing of value to anyone," either. $4.6B in revenues and increasing growth says that the real world doesn't agree with InfoThatHelp.

    In fact, let's delve into a quick company check of Apple vs. RIM.

    As of today, RIM's market cap is 9% of AAPL's.

    RIM's revenues over the last four quarters (chosen to average out seasonal patterns) are 25.8% of AAPL's.

    RIM's gross profit over the last four quarters are 29.3% of AAPL's.

    RIM's net income (cash in the piggy bank) over the last four quarter are 20.7% of AAPL's.

    All of these numbers are actually growing year over year, and quarter over quarter. Accelerating, in fact.

    So... these metrics seem to suggest that Apple is valued anywhere between 2x to 3x more than RIM, on a pure business execution point of view.

    So either RIM is relatively and seriously undervalued, or AAPL is relatively and drastically overvalued. Or both.

    At this point in time, prognostications and reports of RIM's death seem very much premature.

  • Report this Comment On October 21, 2010, at 2:57 AM, Aeoran wrote:

    @InfoThatHelp: a more appropriate comparison, given the fact that RIM punches 2-3x its weight compared to Apple, says that Apple is a wolf, and RIM is a wolverine.

    As for comparing shenanigans, you must be referring to RIM's options backdating thing, in which 1400 option grants to RIM employees were written according to industry practices at the time, which include favourable dating (best price within 30 days of hire). Then there is the Apple thing, in which Jobs forced rewrites of his options to be favourable to himself, and then finally (when Apple shares tanked completely) he forced the corporation to trade his out-of-money options for a smaller number in shares outright, in the money. Not only did he manage to avoid fines and jail (having a vice-president of the United States on his board, who approved these transactions, really helped) - he also threw his general counsel under the bus. Her case is outstanding. The only consolation is that in retrospect, had he simply kept his original options, he'd be worth approximately 20 times more than what he's worth today. God does have a sense of humour.

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